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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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ANNUAL REPORT TO STOCKHOLDERS
AND
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-13264
TRIGEN ENERGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3378939
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ONE WATER STREET
WHITE PLAINS, NEW YORK 10601-1009
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(914) 286-6600
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, Par Value $.01 Per Share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of voting stock held by non-affiliates of
the registrant was $11,294,429 based upon the closing sale price quoted by the
New York Stock Exchange on March 27, 2000. There were 12,401,808 shares of the
registrant's Common Stock outstanding on March 27, 2000.
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THIS DOCUMENT IS A COPY OF THE
ANNUAL REPORT TO STOCKHOLDERS AND FORM 10-K
FILED ON MARCH 31, 2000 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION
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TABLE OF CONTENTS
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PART I
Disclosure Regarding Forward-Looking Statements
Item 1. Business................................................................................... 2
Item 2. Properties................................................................................. 7
Item 3. Legal Proceedings.......................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders........................................ 10
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters....................... 11
Item 6. Selected Financial Data.................................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................. 18
Item 8. Financial Statements and Supplementary Data................................................ 18
Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure....... 18
PART III
Item 10. Directors and Executive Officers of the Company............................................ 18
Item 11. Executive Compensation..................................................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 26
Item 13. Certain Relationships and Related Transactions............................................. 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 29
Index to Financial Statements and Financial Statement Schedules....................................... F-1
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PART I
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report includes historical information as well as
statements regarding our future expectations. The statements regarding the
future (referred to as "forward-looking statements") include among other things
statements about energy markets in 2000; cost reduction targets; return on
capital goals; development, production and acceptance of new products and
process technologies; ongoing and planned capacity additions and expansions and
joint ventures. Important factors that could cause actual results to differ
materially from those discussed in such forward-looking statements include:
supply/demand for our products, competitive pricing pressures, weather patterns,
changes in industry laws and regulations, competitive technology, failure to
achieve our cost reduction targets or complete construction projects on schedule
and Year 2000 computer related difficulties. We believe in good faith that the
forward-looking statements in this Annual Report have a reasonable basis,
including without limitation, management's examination of historical operating
trends, data contained in our records and other data available from third
parties, but such forward looking statements are not guarantees of future
performance and actual results may differ materially from any results expressed
or implied by such forward looking statements.
ITEM 1. BUSINESS
GENERAL
Trigen Energy Corporation was incorporated under the laws of Delaware
on November 21, 1986. In this Annual Report, the pronouns "Trigen", "we" and
"our" refer to Trigen Energy Corporation together with its wholly owned
subsidiaries and the Trigen-Cinergy joint venture subsidiaries ( See "Revenue
Growth/Acquisitions" below). We seek to produce and deliver the maximum economic
value of energy and minimum pollution from each unit of fuel burned. Our
approach is to use fuel to produce electricity or mechanical power, and in the
same process also produce thermal energy (heating and/or cooling). In some
locations our facilities are connected to pipeline networks which distribute our
thermal energy to multiple buildings (district energy), in others our facilities
are located adjacent to industrial plants and dedicated to the needs of those
plants (onsite energy).
On January 19, 2000, Elyo, an energy subsidiary of the Suez Lyonnaise
des Eaux Group, T Acquisition Corp., an indirect wholly owned subsidiary of
Elyo, and the Company entered into a merger agreement, pursuant to which Elyo,
through T Acquisition Corp., would acquire all of the outstanding shares of
Trigen Common Stock it did not already own. On February 28, 2000, T Acquisition
Corp. commenced a tender offer to purchase any and all of the issued and
outstanding shares of Common Stock of Trigen at a price of $23.50 per share, net
to the seller in cash, without interest thereon. The tender offer is being made
pursuant to the terms of the merger agreement. On March 27, 2000, Elyo announced
the completion of the tender offer. As of that date, Elyo had beneficial
ownership of approximately 96% of Trigen's stock.
On January 19, 2000, Richard E. Kessel, formerly executive vice
president, chief operating officer and a director of Trigen, was elected
president and chief executive officer. Mr. Kessel joined Trigen in 1993, when
the Company acquired United Thermal Corporation of which he was CEO. He also
serves as Chairman of the Board's executive committee. Mr. Kessel succeeds
Thomas R. Casten who resigned the position of President and Chief Executive
Officer to pursue other interests.
We operate fourteen district energy systems serving urban customers and
seventeen single customer industrial/commercial energy projects. Our major
customers include industrial plants, electric utilities, commercial and office
buildings, government buildings, colleges and universities, hospitals,
residential complexes, hotels, sports arenas and convention centers. Our two
largest customers are Long Island Power Authority and Coors' Brewing Company
(See Note 2 to Consolidated Financial Statements Summary of Accounting Policies,
Revenue Recognition). A significant portion of our revenues and operating profit
from sales of thermal energy for non-industrial users is subject to seasonal
fluctuations (See Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations).
Our choice of fuels, technology, blend of heat, cooling, and power
produced, and distribution media are determined by local prices for fuel, prices
for conventionally generated energy products and the convertibility of existing
plant and equipment to more efficient cogeneration or trigeneration.
Cogeneration is the combined production of electricity and useful thermal energy
(heating OR cooling) by the sequential use of energy from one unit of fuel.
Trigeneration is the combined production of electricity and useful thermal
energy (heating AND cooling) from one unit of fuel. We develop, own, and operate
facilities that produce and deliver thermal energy to commercial, governmental,
and industrial customers in the form of steam, hot water, and/or chilled water.
Our plants use various technologies - gas turbines, diesel engines, boilers and
chillers - and various fuels, including natural gas, coal, oil, wood waste,
municipal solid waste, and industrial by-products or scrap.
To complement our basic business and to enhance our ability to add
energy value, we have a separate technical product division that develops and
produces products that conserve energy or extract more value from steam or help
users
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manage energy more efficiently. At present, this division offers steam pipeline
insulation products, which may be installed without removing pipe from the
ground and a low temperature thermal stratification fluid designed to lower the
freezing point of water thus increasing the efficiency of conventional chiller
plants. This division also produces back-pressure steam turbine generator sets
and power units. Our back-pressure turbines take the place of steam pressure
reducing valves and extract mechanical energy from the steam pressure reduction
process. We also provide total energy management services to building owners and
operators by providing operational services and management expertise with
respect to energy production, procurement and usage.
Our cogeneration or trigeneration plants emit up to 95% less nitrous
oxides than the conventional electric generation they replace, and because of
greater energy efficiency, emit less than half as much carbon dioxide (an
ingredient in global warming) as would be produced by conventional production of
the same energy. When we burn bio-mass fuels in our plants we eliminate the need
to dispose of this waste in a landfill and we produce no more carbon dioxide
than if these wastes were allowed to decay in a landfill.
REVENUE GROWTH/ACQUISITIONS
Our revenues have increased from approximately $1 million in 1987 (our
first full year of operation) to $280.4 million in 1999 through acquisitions and
internal growth. This Annual Report includes Consolidated Statements of
Operations, which report our revenues and operating income for the last three
fiscal years. Total assets at the end of 1999, 1998 and 1997 were $727.5
million, $618.2 million and $526.0 million respectively.
We report the amount and percentage of our total revenue from thermal
energy sales and electric energy sales for the last three years in Item 7 of
this Annual Report ("Management's Discussion and Analysis of Financial Condition
and Results of Operations"). Our revenue from sales outside the United States
for the last three years was not material. We have not held a material amount of
assets outside the United States over the last three years.
In 1995, we formed a limited partnership with a subsidiary of Tucson
Electric Power Company which purchased the energy systems of Coors' Brewing
Company and Coors Energy Company in Golden, Colorado. In September of 1998, we
purchased an additional 48% interest in that limited partnership from the
subsidiary of Tucson Electric and in June 1999 purchased the remaining 1%. We
now own 100% of those energy systems.
In January 1998, we acquired Power Sources, Inc., which has been
renamed Trigen-BioPower, Inc. Trigen-BioPower operates seven biomass-to-energy
plants, producing steam for seven industrial customers from roughly 600,000 tons
per year of renewable biomass fuels, including wood residues, rice hulls, cotton
waste and paper mill sludge. As of December 1999, Trigen-BioPower has one
additional biomass plant under construction in St. Mary's, GA.
We have an active joint venture with Cinergy Corp. to build, own and
operate cogeneration and trigeneration facilities in the United States, Canada,
the United Kingdom and Ireland. We own 51% of most of the Trigen-Cinergy joint
venture investments and 49% of others.
NEW ON SITE INDUSTRIAL/COMMERCIAL PROJECTS
During 1999, we focused greater efforts on industrial customers. Since
the start of 1999, the Trigen-Cinergy joint venture began operating a district
cooling system Orlando, FL and took over large heating and cooling facilities in
Boca Raton, FL and College Park, MD. Trigen-Cinergy took over operations of
cogeneration facilities in Baltimore, MD and Ashtabula, OH. Trigen-Cinergy has
other projects currently under construction in Baltimore MD, St. Paul, MN,
Silver Grove, KY, and Rochester, NY. Trigen took over operations at a plant in
Decatur, AL and has a plant under construction in Denver, CO. We intend to
continue these efforts in the future and will selectively pursue electricity and
sales to the grid where that electricity is a by-product of efficient heat and
cooling production.
Internationally, we are prepared to pursue selected opportunities in
Canada, Mexico and Central America or other countries where our customers have
facilities that favor a power project with high efficiency, reliability and
waste heat recovery. Trigen has one new plant under construction in Tampico,
Mexico.
BUSINESS STRATEGY
We are a thermal sciences company. We seek ways to reduce fossil fuel
usage with cost effective efficiency. Our mission is to provide heating, cooling
and electricity with half the fossil fuel and half the pollution of conventional
generation. We use our expertise in thermodynamic engineering and proprietary
trigeneration processes to convert fuel to various forms of thermal energy and
electricity and achieve over 90% overall energy efficiency compared to the 33%
average efficiency of the U.S. electric utility industry in 1997.
We believe industrial and institutional energy users will increasingly
turn to specialist energy companies, and will contract out all of their energy
and other utility needs in a process called outsourcing. We offer industrial
customers outsourcing options ranging from operating their systems to investing
our capital to provide new on site energy services and facilities. We specialize
in adding electric power generation sized to provide for the basic thermal
requirements of the
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customer with normally wasted exhaust heat. We believe that our expertise in
developing and running cogeneration projects and projects which use biomass
fuels will be very attractive to these industrial customers.
We see opportunities to expand our existing urban and industrial
systems to serve additional customers and the expanded needs of existing
customers. We will evaluate the acquisition of existing urban district energy or
industrial systems and the development of new systems to provide district energy
or independent power wherever our expertise provides a competitive advantage.
Our strengths for the future include:
- STABLE CUSTOMER BASE. Our long term contracts (i.e. contracts with
remaining terms in excess of 3 years) provide consolidated revenues of
over $275 million per year for the five-year period 2000 through 2005
and approximately $5.5 billion cumulatively for the period 2000 through
2030 (before inflation, renewals and changes in consumption from 1999
levels).
- TECHNICAL INNOVATION AND PLANT OPTIMIZATION. We have special expertise
in the design and operation of energy systems which we use to optimize
the efficiency of energy assets. Among other things, we have installed
computerized, automated control systems, which place real-time
production cost information in the hands of the plant operator, as well
as back-pressure turbines, and thermal storage tanks that allow us to
produce energy during off peak usage periods for use during peak
periods.
- SERVICE RATE STRUCTURES ALIGN OUR INTERESTS WITH OUR CUSTOMERS. Our
thermal service rate structures seek recovery of all fixed costs and a
profit from fixed charges per month, which are adjusted with inflation,
and then add a usage charge that is very close to our variable fuel and
water cost. This lets us help customers to use less energy without
reducing our gross margins and aligns our interests with customers.
This feature has led to reductions of customer energy use per unit of
product, or per square foot of building of as much as 20% in three
years. Our price structures typically enable us to pass through to our
customers fuel and most other commodity prices associated with
providing energy services. For that reason, changes in such prices
(which constitute approximately 49% of our costs) have little impact on
our operating income.
- PROTECTING THE ENVIRONMENT. By extracting and delivering the maximum
value of energy from fuel and by employing pollution control
technology, we emit substantially less pollution than would result from
conventional generation of the same heat, electricity, and cooling. The
principal reasons for lower emissions are the fuel efficiency of
cogeneration and trigeneration, the use of biomass, employment of
refrigerants other than CFC's and wherever possible, thermal, chemical,
and catalytic destruction of exhaust contaminants. Our modern
cogeneration plants produce as little as 5% of the nitrogen oxide
emissions associated with conventional generation.
- ENTREPRENEURIAL MISSION DRIVEN MANAGEMENT. Our senior management has
extensive experience in developing and operating plants and processes
that increase the value extracted from each unit of energy. These
activities include the development and operation of district energy
systems and cogeneration technologies.
OVERVIEW OF OUR PRODUCTS AND SERVICES
The plants we operated at the end of 1999 have the total capacity to
produce 6,104 Megawatts of end use energy, of which approximately 86% is steam
or hot water, 7% is electricity and 7% is chilled water. These products are
distributed to customers through 156.4 miles (251.6 kilometers) of pipeline.
Separate pipelines are used for steam, hot water and chilled water.
When we produce electricity with diesel or gas turbines, we recover the
exhaust heat to produce additional electricity, steam or hot water and/or
chilled water. Because demand for steam and hot water has daily and yearly
cycles, we cannot always use all the waste heat generated by our plants to
produce steam and hot water for immediate use. Trigeneration plants enable us to
recover and use waste heat to produce chilled water when heat demands are low.
We also store chilled water produced off-peak for sale during the peak usage
hours.
By generating two or three energy products from a single fuel source,
cogeneration and trigeneration increase the value of useful energy output.
Average US electric-only generation converts 33% of fuel energy to high value
electricity, but exhausts 67% of the fuel energy as waste heat. Conventional
heat-only production converts 60% to 85% of the fuel energy to a much lower
value energy form -- typically steam, hot water, or hot air -- and fails to
extract the high value electric energy. Our approach is to combine the
generation of heat and power to maximize the value of energy produced from each
unit of fuel and minimize the resultant pollution.
We balance the costs of producing and delivering these various energy
products, including the cost of capital, labor, line losses, and fuel with the
market value of the products to each user. The resulting plants seek to generate
profits after debt service by extracting more delivered value than conventional
single product generation.
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Reliability of service is a key. Most of our facilities have sufficient
heating capacity to generate peak loads with their largest production unit out
of service, and have the ability to use two or more different fuels.
STEAM AND HOT WATER. We produce steam and/or hot water at substantially
all of our systems. Our customers use our steam and/or hot water for space
heating and hot water, for various industrial process uses, for cooling (by
powering on-site steam-driven chillers or absorption chillers), and for
humidification and sterilization.
Currently, the States of Missouri and Pennsylvania regulate our
district steam energy business. Pennsylvania requires us to seek State
regulatory approval of our prices for steam service. Missouri requires us to
seek State regulatory approval of our prices for steam service from our Kansas
City facilities. Our other businesses are not subject to State utility price
regulation. In 1999, Maryland and New Jersey removed the requirement to seek
State regulatory approval of pricing for steam.
ELECTRICITY. We produce electricity at seventeen of our plants. The
electricity produced is sold to the local utility company or used by our
customers or us. Our electric generating plants, which sell their power to the
local utility, are located in Kansas City, MO, London, Ontario (Canada), Nassau
County, NY, Philadelphia, PA and Trenton, NJ. The plants in Nassau County, NY,
Philadelphia, PA, Trenton, NJ and Kansas City, MO are qualified for an exemption
from regulation under the Public Utility Regulatory Policies Act of 1978.
CHILLED WATER. At fifteen of our facilities, we produce chilled water,
which we provide to customers to cool commercial building space and for process
chilling.
OTHER ENERGY SERVICES. We provide other utility services to our
customers such as compressed air and water treatment. We also provide operating
supervision, management and maintenance of facilities as well as advice and
assistance regarding initial design, construction and start-up, with respect to
energy use as well as energy audits.
FUEL AND RAW MATERIALS
We are a significant purchaser of gas, coal, oil and biomass fuels, as
well as chillers, boilers, generators and other equipment used for heating,
cooling and electric generation. Most of our gas, coal, oil and biomass fuel
requirements, as well as most of our other supplies, are purchased from local
suppliers. We believe that we have adequate sources of fuel, supplies and
equipment.
COMPETITION
PROVISION OF DISTRICT HEATING, ELECTRICITY AND COOLING
The sale of electricity at wholesale over the interstate electric power
grid is highly competitive. Where permitted by State law, the sale of electric
power to individual end-users is also highly competitive. Some States continue
to ban retail sales of electric power by non-utility companies as a means to
protect the local electric utility monopoly. Other States permit non-utility
generators to sell their electric power to only one user on the same site as
their power plant. The provision of heating and cooling services through a
multiple-user distribution system is highly competitive with on-site generation
of the heat and cooling. There are currently very few competing operators of
multiple-user district energy systems. Our principal thermal energy competition
is from potential customers who own and operate their own boiler and chilled
water plants. These customers are often provided financial incentives to install
and retain their own plants by the suppliers of raw energy (such as local oil,
natural gas and electricity companies) and by equipment suppliers that sell
products and services to users who self-generate thermal energy. In several
locations, local utilities are competing directly with us through unregulated
subsidiaries offering steam and/or cooling.
We believe that competition in the district energy business turns on
the customers' evaluation of expected cost savings and reliability of service.
We compete to attract and retain customers, and also compete for contracts and
other awards to develop new facilities and systems. A significant additional
factor is the high capital cost involved in constructing a district energy
system. While this factor provides a competitive advantage once we are operating
a completed system, high initial capital costs typically require us to have a
significant number of customers, preferably under long-term contracts, prior to
undertaking construction of a new cooling or heating system. We will pursue
opportunities to expand our district energy systems and services wherever our
expertise provides a competitive advantage.
TECHNOLOGY
Our research and development efforts have focused on improving the
value of the energy products we extract and deliver. Our principal focus has
been on finding ways to more efficiently convert fuel to energy and on improved
generating, monitoring, automation and storage technologies. These efforts have
resulted in the trigeneration machine, innovations in chilled water storage and
control systems, innovative applications of standard modular equipment, and
various incremental operational improvements. Expenditures for
customer-sponsored or Company-sponsored research and development are not
separately reflected in our financial statements, and the Company believes that
if such expenditures were so allocated, the amounts would not be material. We
have been granted patents for the trigeneration
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machine, our freeze suppression chemical for stratified cold water storage and a
fuel blending system for emissions control. None of these patents are believed
to be material.
YEAR 2000 COMPUTER ISSUES
We discuss our Year 2000 computer processing compliance status in Item
7 of this Annual Report ("Management's Discussion and Analysis of Financial
Condition and Results of Operations").
ENVIRONMENTAL
Our operations are subject to extensive federal, state, provincial and
local environmental laws and regulations that govern, among other matters,
emissions into the air, the discharge of effluents, the use of water, fuel tank
management and the storage, handling and disposal of toxic waste material. We
believe that our facilities are in substantial compliance with applicable
environmental laws and regulations and seek to maintain such compliance through
appropriate management policies and procedures.
We invest substantial funds to modify facilities to comply with
applicable environmental laws and plan additional capital expenditures for these
purposes in the future. We spent approximately $ 2.9 million and $ 3.9 million
in 1999 and 1998, respectively, to comply with these requirements and estimate
that the expenditures for environmental compliance in 2000 through 2002 will be
approximately $ 11.2 million in the aggregate. These expenditures may include
improvements at certain facilities for air emission control and monitoring
equipment, wastewater discharge control equipment, asbestos control and other
applicable environmental requirements. Additional amounts to be spent for
environmental compliance in future years will depend on new laws and regulations
and other changes in environmental concerns and legal requirements.
Our United States facilities are subject to regulation by the U. S.
Environmental Protection Agency under the Clean Air Act, among other laws. In
May of 2003, regulations under the Clean Air Act are scheduled to create an
allocation and trading program with respect to the release of nitrogen oxides
into the atmosphere from facilities located in 12 States in the northeast United
States. We produce nitrogen oxides at substantially all of our facilities. Our
facilities in Philadelphia, PA and Nassau County, NY are currently expected to
be required to comply with a nitrogen oxides emissions budget. Based on the
current emissions budget allocated by the EPA to our facilities in Philadelphia,
PA and Nassau County, NY, we do not believe that our compliance with these
requirements will have a material impact on our results of operations. If the
EPA revises our current budget, that may have a material impact on our results
of operations. Our other facilities may become subject to nitrogen oxide
emissions reductions requirements in the future. We are not able to predict what
the impact of any new requirements would be at this time.
EMPLOYEES
As of December 31, 1999, we had approximately 846 employees of which
110 were covered by union agreements.
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ITEM 2. PROPERTIES
We operate 51 energy plants at 36 different locations. We own all or a
portion of the interests in most of our facilities, lease some facilities and
manage others. Note 13 of the Notes to Consolidated Financial Statements of the
Company (included later in this Annual Report) describes how our assets are
pledged as security under our financing agreements.
We operate district energy systems in Boston, MA, Baltimore, MD,
Charlottetown, Prince Edward Island (Canada), Kansas City, MO, London, Ontario
(Canada), Oklahoma City, OK, Orlando, FL, Philadelphia, PA, St. Louis, MO,
Trenton, NJ and Tulsa, OK. In Philadelphia, PA, we have a one half interest in
the Grays Ferry Cogeneration Facility. We operate energy systems on the site of
our industrial and commercial customers in Nassau County, NY, Chicago, IL,
Golden, CO, Eden NC, Forest City, NC, Greenville, MS, Lenoir, NC, Loudon, TN,
Marion, NC, Tuscola, IL, Boca Raton, FL, Baltimore, MD, Decatur, AL, Champaign,
IL, Ashtabula, OH, College Park, MD, Rochester, NY and Syracuse, NY. Certain of
these facilities are subject to minority interests due to investments by our
Trigen-Cinergy joint venture, among other factors.
The Company leases approximately 22,000 square feet in White Plains,
New York, which houses our executive offices, financial, engineering, marketing,
legal and data processing staffs. The term of the lease extends through March
31, 2005 and the annual rent due thereunder is approximately $.5 million. We
believe that these facilities are adequate to meet our needs for the foreseeable
future, and that suitable replacement space is readily available.
ITEM 3. LEGAL PROCEEDINGS
OKLAHOMA LITIGATION
In September 1996, our subsidiary, Trigen-Oklahoma City Energy
Corporation ("Trigen-Oklahoma City"), commenced an antitrust action in Federal
District Court in Oklahoma City seeking injunctions and actual, treble and
punitive damages from a local utility, Oklahoma Gas and Electric Company
("OG&E"), based on alleged anti-competitive actions against Trigen-Oklahoma City
Energy Corporation by OG&E. Trigen-Oklahoma City's antitrust action went to
trial in 1998 and on December 21, 1998, the jury returned a verdict in favor of
Trigen. On January 19, 1999, the Court entered a judgment in favor of Trigen in
the amount of $27.8 million. On January 25, 2000 the court decided post-trial
motions to vacate or modify the judgment reducing the judgment to $20.6 million.
OG&E has filed an appeal to the Tenth Circuit Court of Appeals and has posted a
bond in order to stay enforcement of the judgment pending appeal. Trigen has
filed a cross-appeal. Trigen's separate motion for attorney's fees (seeking
approximately $3 million) is pending but OG&E has requested that the court
postpone a hearing on that motion until the appeals are decided by the Circuit
Court. We have not recognized any gain with respect to this matter because we
cannot predict the final outcome.
KINETIC ENERGY LITIGATION
On May 2, 1997, a judgment was entered against us in the amount of $4.3
million following a jury trial in a law suit by Kinetic Energy Development
Corporation against Trigen in the Circuit Court of Jackson County, Missouri, in
connection with our acquisition of the Kansas City steam system. Kinetic claimed
for compensation alleged to be owed to it by Trigen in connection with that
acquisition. On August 6, 1997, the Court set aside the jury verdict and granted
judgment for Trigen. Kinetic Energy Development Corporation appealed that order
and on December 8, 1998, the Missouri Court of Appeals set aside the lower court
decision and ordered a new trial. On December 22, 1998, we filed a motion for
rehearing with the Missouri Court of Appeals and/or a review by the Missouri
Supreme Court. The Court of Appeals granted our motion for rehearing. On
September 7, 1999, the Court of Appeals held that Kinetic had proven only
nominal damages at trial and returned the case to Circuit Court for retrial. The
retrial will allow Kinetic to attempt to establish that it is entitled to some
award for the reasonable value of its services, if any, in connection with the
Trigen acquisition of the Kansas City steam system. The case presently awaits
rescheduling for trial. We believe we have good defenses to these claims.
Accordingly, we have not recognized any loss or expense (other than defense
costs) with respect to this matter, although we cannot predict the final
outcome.
GRAYS FERRY LITIGATION
On April 23, 1999, the Pennsylvania Court of Common Pleas of
Philadelphia County approved a settlement agreement which ended the lawsuit
brought by Grays Ferry Cogeneration Partnership (the "Partnership"),
Trigen-Schuylkill Cogeneration, Inc. and CogenAmerica Schuylkill Inc. against
PECO Energy Company and Adwin (Schuylkill) Cogeneration, Inc. The Partnership is
the owner of the Grays Ferry Cogeneration Facility located in Philadelphia,
Pennsylvania. The Partnership, Trigen-Schuylkill and CogenAmerica commenced this
lawsuit in reaction to the alleged
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termination by PECO on March 3, 1998, of the electric power purchase agreements
between the Partnership and PECO (the "Power Purchase Agreements").
Prior to the settlement, we owned a one-third interest in the
Partnership through our wholly owned subsidiary, Trigen-Schuylkill. CogenAmerica
and Adwin owned the other two-thirds interests in the Partnership. Adwin is an
indirect wholly owned subsidiary of PECO. Under the settlement agreement, PECO's
subsidiary, Adwin, surrendered its rights to its one-third partnership interest
in the Partnership to the two remaining partners, Trigen-Schuylkill and
CogenAmerica. As a result, we own one half of the Partnership and CogenAmerica
owns the other half.
In the year 2001, the energy price under the Power Purchase Agreements
will be based upon a percentage of a market based index, which we expect to
produce substantially lower revenues from sales to PECO than the more favorable
rates of the early contract years. Under the settlement agreement the
Partnership gained the right to sell to third parties electric energy and
capacity from the facility in excess of the 150 megawatts which PECO is required
to purchase under the Power Purchase Agreements, subject to a right of first
refusal for PECO. We expect that the ability to sell to third parties electric
energy and capacity above the 150 megawatts under contract to PECO, will result
in an opportunity to improve the financial performance of the Partnership. The
Partnership will now have the ability to institute capital modifications to the
combustion turbine to increase electric capacity during the summer months when
the price of electric capacity and energy are historically the highest.
Separately, The Chase Manhattan Bank, as agent for several commercial
banks (collectively "Chase"), and Westinghouse Power Generation, which
collectively financed the construction of the Gray's Ferry Cogeneration
Facility, agreed to dismiss their lawsuits against PECO. Chase and Westinghouse
also agreed that they will not charge the Partnership for any default interest
up to April 16, 1999, although they have reserved the right to do so with
respect to periods after April 16, 1999.
The Partnership is in default under its separate credit agreements with
Westinghouse and Chase for the following reasons. The Partnership did not
convert on time its short-term construction loan from Chase to a longer term
loan. The Partnership could not complete that conversion because of a dispute
with the construction contractor, which has now been resolved. The Partnership
also did not make principal payments to Westinghouse because the Chase loan
agreement prohibits such payments to subordinate parties while the Partnership
is in default. Westinghouse is a subordinate party.
The Partnership owes a total principal amount of approximately $79.4
million to Chase. Chase has not accelerated the debt owing under the Credit
Agreement. Chase has required to date, and may require in the future, the
Partnership to apply available cash held by Partnership (net of operating
expenses) toward repayment of the principal amount of the loans outstanding to
Chase. The Partnership owes a total principal amount of approximately $15
million to Westinghouse. On March 1, 2000, Westinghouse demanded full payment of
the amount owing to Westinghouse under its credit agreement. Only the
Partnership assets and the Partners' ownership interests in the Partnership
secure the Partnership's debt under the Chase and Westinghouse loans. The
Partnership has accrued $3.0 million in default interest since April 16, 1999.
To resolve these matters we have negotiated an amendment to the credit
agreement with Chase and we are negotiating with Westinghouse and other
subordinate parties.
NASSAU LITIGATION
On May 29, 1998, the County of Nassau, New York commenced an action
against Trigen Energy Corporation and Trigen-Nassau Energy Corporation in New
York State Supreme Court. Trigen-Nassau provides energy services to Nassau
County under various agreements. Nassau County alleges that Trigen-Nassau
breached those agreements by, among other means, charging the County for certain
real estate taxes that the County contends are Trigen-Nassau's responsibility.
On October 8, 1998, the Court dismissed the claims against Trigen Energy
Corporation. On November 9, 1998, Trigen-Nassau filed counterclaims against
Nassau County, seeking $1.6 million in damages. Trigen-Nassau alleges that
Nassau County breached the parties' agreements by, among other things, failing
to operate and maintain certain facilities and equipment. On January 21, 1999,
the County requested that the Court dismiss Trigen-Nassau's counterclaims. On
April 5, 1999, the Court dismissed some but not all of Trigen-Nassau's
counterclaims. The Court declined to dismiss Trigen-Nassau's counterclaims that
seek approximately $1.5 million in damages. The County is seeking approximately
$10 million in damages. We believe we have good defenses to the County's claims.
Accordingly, we have not recognized any loss or expense (other than defense
costs) with respect to this matter, although we cannot predict the final
outcome.
8
<PAGE>
ESI LITIGATION
In 1996, ESI, Inc. commenced an action against, among others, Coastal
Power Company, Latin American Energy Development, Inc. and La Casa Castro S.A.
de N.V. in the United States District Court for the Southern District of New
York. On September 17, 1998, ESI, Inc. amended its complaint naming Trigen as an
additional defendant. This action arises out of the development by Trigen, Latin
American Energy, La Casa Castro and others, of an independent power project in
El Salvador between 1993 and 1994. Trigen transferred its interest in the
project to Tenneco Gas International in May 1994. In July 1994, Tenneco
transferred its interest in the project to Coastal Power Company, which
currently owns and operates the project. ESI claimed that it was entitled to a
2.5% interest in the project and that Coastal had wrongfully withheld or denied
ESI's interest. ESI further claimed that Trigen had failed to disclose ESI's
interest to Tenneco and so was responsible, in whole or in part, for ESI's
failure to receive a 2.5% interest in the project from Coastal.
On October 8, 1998, Latin American Energy asserted cross-claims against
Trigen, Coastal and Tenneco claiming that it too had been denied its carried
interest in the Project. On October 28, 1998, La Casa Castro asserted
cross-claims against Trigen and on November 6, 1998, Coastal asserted
cross-claims against Trigen for indemnification, each alleged that Trigen failed
to disclose ESI's claimed interest to Tenneco and that Trigen was responsible
for any damages that each may be required to pay to ESI and Latin American.
On December 15, 1998, Trigen filed an amended answer denying liability
for these claims and cross-claimed against Latin American Energy, Tenneco,
Coastal and La Casa Castro, asserting that these parties were responsible for
any damages owed to ESI and Latin American. On December 23, 1998, ESI and Latin
American dismissed without prejudice their claims against Trigen.
Coastal and La Casa Castro are continuing to assert their claims
against Trigen for any damages they may be required to pay to ESI or Latin
American. At this time, the case is in the early stages of discovery and as such
we are not able to estimate the amount of damages that ESI and Latin American
are seeking. We believe we have good defenses to Coastal's claims and La Casa
Castro's claims. Accordingly, we have not recognized any loss of expense (other
than defense costs) with respect to this matter, although we cannot predict the
final outcome.
SHAREHOLDER CLASS ACTIONS AGAINST TRIGEN
COMPLAINTS OF FOTHERGILL, CORTEZ, AND BERKOWITZ.
On September 23, 1999, three complaints were filed in the Court of
Chancery of the State of Delaware against: Trigen Energy Corporation, Suez
Lyonnaise Des Eaux SA, Patrick Buffet, George F. Keane, Thomas R. Casten,
Philippe Brongniart, Olivier Degos, Patrick Desnos, Richard E. Kessel, Charles
E. Bayless, Michel Bleitrach, Dominique Mangin D'Ouince and Michel Cassou. The
individual defendants were sued in their capacity as Trigen directors and/or
former Trigen directors. The complaints were filed, respectively, by Michael
Fothergill, Rosa Cortez and Sarah Berkowitz. Each complaint was filed
purportedly as a class action on behalf of the Company's shareholders. The
complaints raised substantially identical allegations: that Trigen received a
proposal from Suez to take Trigen private for $22.00 per share in cash. The
plaintiffs alleged that this price does not represent the true value of Trigen
and is unfair to the minority shareholders. Plaintiffs further alleged that
because Suez owns approximately 52% of Trigen's outstanding shares, Suez has the
power to effectuate the transaction without regard to the minority shareholders.
Plaintiffs sought class certification, declaratory and injunctive relief (or
money damages if the transaction is consummated), and an accounting. By
agreement of the parties, an order has been entered consolidating all three
actions under the Fothergill caption.
On February 22, 2000, counsel for ELYO and the plaintiffs reached an
agreement to settle this lawsuit, subject to court approval. The settlement does
not require any payment to the plaintiffs from the Company or its directors.
Accordingly, we have not recognized any loss or expense (other than defense
costs and certain costs of providing Notice of Settlement to Class members) with
respect to this matter, although we cannot predict the final outcome. The
parties are in the process of submitting this settlement to the Court of
Chancery of the State of Delaware for approval.
9
<PAGE>
COMPLAINT OF RICE.
On March 16, 2000, Adam Rice filed a complaint in the Supreme Court of
the State of New York, County of Westchester against Trigen Energy Corporation,
Suez Lyonnaise Des Eaux S.A., Elyo, S.A., T Acquisition Corporation, Christine
Morin-Postel, Richard E. Kessel, George Keane, Patrick Buffet, Olivier Degos,
Philippe Brongniart, Michel Bleitrach, Dominique Mangin D'Ouince and Charles
Bayless. The complaint was filed purportedly as a class action on behalf of the
Company's shareholders. The individual defendants were sued in their capacity as
Trigen directors. The plaintiff alleged that the defendants have breached their
fiduciary duties to plaintiff and our public shareholders by not renegotiating
and/or reformulating the terms of the tender offer by which T Acquisition
Corporation has offered to purchase all of our outstanding shares at a price of
$23.50 per share. Plaintiff seeks class certification and money damages as well
as other unspecified relief. We believe we have good defenses to these claims.
Accordingly, we have not recognized any loss or expense (other than defense
costs) with respect tot his matter, although we cannot predict the final
outcome.
OTHER LITIGATION
We are subject from time to time to various other claims that arise in
the normal course of business, and we believe that the outcome of these matters
(either individually or in the aggregate) will not have a material adverse
effect on our business results of operation or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Our Common Stock is traded on the New York Stock Exchange under the
symbol TGN. As of March 27, 2000 there were approximately 431 shareholders of
record.
The following table sets forth the high and low sales prices at close
for our Common Stock for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
1999
<S> <C> <C>
First Quarter.................................................................................... 16 13/16 11 3/8
Second Quarter................................................................................... 19 7/16 13 5/8
Third Quarter.................................................................................... 23 3/4 17 1/8
Fourth Quarter................................................................................... 24 16
1998
First Quarter.................................................................................... 19 15/16 14 13/16
Second Quarter................................................................................... 15 1/8 12 1/8
Third Quarter.................................................................................... 13 15/16 9 3/4
Fourth Quarter................................................................................... 15 5/16 11 5/16
</TABLE>
During 1999 and 1998, we declared quarterly dividends in an aggregate
annual amount equal to $0.14 per share of Common Stock. See Note 2 of the Notes
to the Condensed Financial Statements of Trigen Energy Corporation (Parent
Company) for a statement on amounts available for payment of dividends.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected consolidated financial data
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements, including the notes thereto, appearing elsewhere in this Annual
Report:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................. $280,420 $242,394 $240,651 $243,634 $198,710
Operating income............................ 39,551 31,823 28,743 43,138 37,038
Interest expense............................ 25,994 23,742 18,976 18,840 19,890
Earnings before extraordinary item
and cumulative effect of a change in
accounting principle....................... 16,108 6,557 5,025 14,051 10,564
Extraordinary loss (a)...................... --- (299) --- (1,943) ---
Cumulative effect of a change in
accounting principle (b)................... (4,903) --- --- --- ---
Net earnings................................ 11,205 6,258 5,025 12,108 10,564
Basic earnings per common share.............
Before extraordinary item................ 1.34 .55 .42 1.21 .93
Extraordinary loss....................... --- (.03) --- (.17) ---
Cumulative effect of a change in
accounting principle.................... (.41) --- --- --- ---
------------ ------------- ------------- ------------- -------------
Net earnings............................. .93 .52 .42 1.04 .93
------------- ------------ ------------ ----------- ------------
Diluted earnings per common share...........
Before extraordinary item................ 1.33 .55 .41 1.20 .93
Extraordinary loss....................... --- (.03) --- (.17) ---
Cumulative effect of a change in
accounting principle.................... (.41) --- --- --- ---
------------ ------------- ------------- ------------- -------------
Net earnings............................. .92 .52 .41 1.03 .93
------------ ------------- ------------- ----------- ------------
Dividends per common share.................. .14 .14 .14 .14 .14
------------ ------------- ------------- ------------ ------------
BALANCE SHEET DATA (AT YEAR END):
Working capital (deficit)................... (14,575) (9,543) (2,095) (5,400) 282
Property, plant and equipment, net.......... 515,840 442,755 388,448 371,584 341,188
Total assets................................ 727,506 618,156 525,969 494,436 454,906
Long-term debt.............................. 406,755 343,685 256,361 226,487 223,371
Stockholders' equity........................ 160,023 147,928 145,482 140,670 118,830
OTHER OPERATING DATA:
Operating margin............................ 14.1% 13.1% 11.9% 17.7% 18.6%
Ratio of earnings to fixed charges (c)...... 1.7 1.2 1.4 2.1 1.8
Depreciation expense........................ $23,590 $19,780 $16,021 $7,595 $11,429
Capital expenditures........................ $93,646 $42,910 $39,415 $47,641 $18,454
Number of employees (at year end)........... 846 745 674 651 632
</TABLE>
- --------
(a) The extraordinary losses in 1998 and 1996 result from the early
extinguishment of debt. See Note 5 of the Notes to Consolidated Financial
Statements.
(b) Reflects an after-tax charge of $4.9 million related to the adoption of SOP
98-5 "Reporting on the Costs of Start-Up Activities" which was recorded as
a cumulative effect of a change in accounting principle. See Note 4 of the
Notes to Consolidated Financial Statements.
(c) Earnings used in computing the ratio of earnings to fixed charges consist
of earnings before extraordinary item plus income taxes, fixed charges
(excluding capitalized interest) and income distributions of
non-consolidated partnerships on a cash basis. Fixed charges consist of
interest expense, capitalized interest and a portion of rental expense
representative of the interest factor.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Annual Report.
The following table shows revenues and units of megawatt hours sold for
the three years ended December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------------------------------------------
REVENUE REVENUE REVENUE
AMOUNT % UNITS AMOUNT % UNITS AMOUNT % UNITS
(DOLLARS IN MILLIONS, UNITS IN THOUSANDS OF MEGAWATT HOURS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thermal energy................. $212.5 76 6,347 $182.4 75 5,940 $179.5 75 5,008
Electric energy................ 45.2 16 836 42.7 18 785 49.0 20 950
Fees and other revenues........ 22.7 8 --- 17.3 7 --- 12.2 5 ---
-------- ----- -------- -------- ----- ------- -------- ----- --------
Total.......................... $280.4 100 7,183 $242.4 100 6,725 $240.7 100 5,958
====== === ===== ====== === ===== ====== === =====
</TABLE>
The following table shows the components of the Statement of Operations as
a percent of total revenues for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total revenues.......................................................................... 100.0% 100.0% 100.0%
Fuel and consumables.................................................................... (41.8) (41.9) (47.4)
Production and operating costs.......................................................... (19.6) (19.9) (19.6)
Depreciation and amortization........................................................... (9.9) (10.1) (7.6)
General and administrative.............................................................. (14.6) (15.0) (13.5)
----- ----- -----
Operating income........................................................................ 14.1 13.1 11.9
Interest expense........................................................................ (9.3) (9.8) (7.9)
Other income, net....................................................................... 6.2 2.3 1.0
Minority interest in earnings of subsidiaries........................................... (1.2) (1.0) (1.5)
------ ------ ------
Earnings before income taxes, extraordinary item and
cumulative effect of a change in accounting principle................................... 9.8% 4.6% 3.5%
====== ====== ======
</TABLE>
Our preferred rate structure for thermal energy includes fixed and
variable components. These rate structures are intended to cause revenues to
match our costs of providing capacity, including projected debt service and
return on equity, thermal losses in the distribution network, taxes, labor and
scheduled maintenance and repair. The capacity component, which is independent
of usage in the period, generally includes cost escalation provisions. These
rate structures also contain a charge, which varies with usage during the
period, and which is intended to cover directly variable costs, so as to pass
through to customers our cost of fuel.
A significant portion of our revenues and operating profit are subject
to seasonal fluctuation due to peak heating demand in the winter and peak
cooling demand in the summer. This seasonal fluctuation is accentuated in those
acquired steam systems where our preferred rate structures are not employed. Our
strategy of converting old contracts to our preferred rate structures, adding
cooling, electricity, energy services and industrial process loads has reduced
the concentration of revenues in cold months during 1999 and is expected to
continue in the future.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
OVERVIEW
For the year ended December 31, 1999, earnings before a cumulative
effect of a change in accounting principle amounted to $16.1 million, or $1.33
per diluted earnings per share. This compared to $6.6 million, or $.55 per
diluted earnings per share before extraordinary item reported in 1998. For the
year ended December 31, 1999, net earnings amounted to $11.2 million, or $.92
per diluted earnings per share after the effect of the adoption of a change in
accounting principle. Revenues of $280.4 million for 1999 increased $38.0
million, or 15.7% over 1998. Operating income was $39.6 million and the
operating margin was 14.1% in 1999 compared with operating income of $31.8
million and an operating
13
<PAGE>
margin of 13.1% in 1998. Included in net earnings for 1999 was a non-recurring
after-tax gain of $8.5 million, or $.70 per diluted share, related to the PECO
lawsuit settlement. (See Note 23 of Notes to Consolidated Financial Statements,
Legal Proceedings)
REVENUES
Revenues of $280.4 million in 1999 increased $38.0 million from
revenues of $242.4 million in 1998. Thermal energy revenue increased $30.1
million to $212.5 million. Units of thermal energy sold increased 19% over 1998
reflecting a somewhat colder winter and the full year contribution of our joint
venture in Tuscola, Illinois.
Electric energy revenues increased $2.5 million to $45.2 million in
1999. The predominant reason for this increase is due to our Nassau facility,
which operated for the full year in 1999, but was taken off line in 1998 for 22
days for a scheduled five year major overhaul. In addition, our new cogeneration
plant in St. Louis began operations and contributed to electricity revenues in
1999.
Equity in earnings (losses) of non-consolidated subsidiaries increased
$2.9 million in 1999. This is due essentially to the improvement in earnings of
the Grays Ferry Cogeneration Partnership and the increase in our ownership share
to 50% from 33 1/3% as a result of the PECO settlement. The increase in the
Partnership income reflects the reversal of 1998 default interest of $1.8
million (our share is $.9 million) which was waived through April 16, 1999 after
such settlement (See Note 23 of the Notes to Consolidated Financial Statements,
Legal Proceedings).
Fees earned and other revenues increased by $2.5 million in 1999 as a
result of our new joint venture projects in Baltimore, MD and Ashtabula, OH.
OPERATING EXPENSES
Fuel and consumables in 1999 increased $15.8 million to $117.3 million,
an increase of 15.6%. This increase reflects the increased level of energy
sales. Our rates typically enable us to pass changes in fuel and most commodity
costs to the customer. As a result, such changes have little impact on operating
income.
Production and operating costs are those costs incurred to operate the
plants, other than fuel and consumables in 1999, and include labor and
supervisory personnel, repair and maintenance costs, and plant operating costs.
In 1999, production and operating costs totaled $55.0 million, a 13.9% increase
over 1998. This increase is primarily due to the inclusion of production and
operating costs associated with 1999 new industrial accounts.
Depreciation and amortization expense was $27.8 million in 1999,
compared with $24.4 million in 1998. In 1999, we recognized an asset impairment
loss of $3.0 million. This loss represents the difference between the carrying
value of the long-lived assets of a division of our Canadian subsidiary and the
fair value of those assets based on estimated discounted future cash flows. The
loss is included in depreciation expense.
General and administrative expenses of $40.8 million in 1999 increased
$4.4 million compared to 1998. Expenses in 1998 included special cost
adjustments of $2.0 million for insurance and employee related costs. Increased
costs in 1999 are primarily due to legal expenses incurred in pursuing the
Oklahoma City antitrust lawsuit against OG&E, overhead related to new industrial
accounts and to increased expenses required to pursue energy outsourcing
opportunities.
OTHER INCOME/(EXPENSE)
Interest expense increased $2.3 million to $26.0 million in 1999
primarily due to higher debt levels required to finance new business.
Other income, net was $17.4 million in 1999, an increase of $11.8
million over 1998. This is primarily due to recognizing the gain from our share
of the Adwin interest in the Grays Ferry Cogeneration Partnership which was
surrendered to us on April 23, 1999 as part of the PECO settlement (See Note 23
of Notes to Consolidated Financial Statements - Legal Proceedings). We recorded
a pre-tax gain of $14.5 million which represents the market value of the share
of Adwin's interest in the Partnership that was surrendered to us. Other income,
net for 1998 included the net results from gains of $2.1 million from the sale
of nitrogen oxide emission allowances and $1.7 million from an insurance
settlement.
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<PAGE>
INCOME TAXES
Our effective tax rate is determined primarily by the federal statutory
rate of 35% and state and local income taxes. The effective tax rate was 41.4%
in 1999 and 41.1% in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
OVERVIEW
For the year ended December 31, 1998, net earnings were $6.3 million
compared with $5.0 million in 1997, and diluted earnings per common share were
$.52 in 1998 compared with $.41 per common share 1997. Included in net earnings
for 1998 was an extraordinary loss of $.3 million, or $.03 per common share, as
a result of the early extinguishment of debt. Revenues of $242.4 million in 1998
increased $1.7 million over revenues of $240.7 million in 1997. Operating income
was $31.8 million in 1998 and the operating margin was 13.1% in 1998 compared
with operating income of $28.7 million and an operating margin of 11.9% in 1997.
Offsetting the continuing mild weather and unfavorable results from our Canadian
operations were positive contributions from the Trigen-BioPower acquisition and
the Grays Ferry Cogeneration Partnership. Both were major contributors to the
higher levels of revenues and profits in 1998.
REVENUES
Revenues of $242.4 million in 1998 increased $1.7 million from $240.7
million in 1997. Thermal energy revenue increased $2.9 million to $182.4
million. Units of thermal energy sold increased 19% over 1997 primarily
reflecting the contribution of Trigen-BioPower, which was acquired in January
1998. Partially offsetting this increase were lower thermal energy sales in
Philadelphia, Boston and Baltimore due to the effect of milder weather patterns.
Electric energy revenues decreased $6.3 million to $42.7 million in
1998. The Nassau plant was taken off-line by the local utility, as permitted
under their contract, for a longer period of time in 1998 than in 1997. In
addition, in 1998, this facility was taken off-line for twenty-two days for a
scheduled five year major overhaul. The Grays Ferry Cogeneration Partnership, of
which we were a 33% partner, commenced operations in January 1998 and produced
$60.3 million in electrical revenues for the year. Grays Ferry replaced our
electric generation in Philadelphia and thus lowered reported revenues from
electricity compared to the prior year by approximately $3.2 million. Our 33%
share of the Grays Ferry Cogeneration Partnership's electric revenues are $20.1
million and the resulting profits are reflected in equity earnings of
non-consolidated subsidiaries.
Equity earnings/(losses) of non-consolidated subsidiaries in 1998
exceeded 1997 by $5.9 million, primarily reflecting our share of earnings from
the Grays Ferry Cogeneration Partnership.
Fees earned and other revenues declined slightly in 1998, reflecting
the absence of revenues associated with the sale of a natural gas pipeline in
1997. This was essentially offset by the inclusion of fees from the Grays Ferry
Cogeneration Partnership in 1998.
OPERATING EXPENSES
Fuel and consumables were $101.5 million in 1998, a $12.7 million
decrease from 1997, in spite of a significant increase of 19% in thermal energy
units sold. This decrease reflects the lower level of energy sales due to warm
weather at systems primarily located in the Northeast and lower fuel prices at
our fossil fuel plants. Our rate structure typically enables us to pass changes
in fuel and most commodity costs to the customer. As a result, such changes have
little impact on operating income. Fuel and consumables' costs decreased from
47.4% of revenues in 1997 to 41.9% in 1998 largely due to the addition of seven
biomass fueled plants with relatively low fuel prices.
Production and operating costs are those costs incurred to operate the
plants, other than fuel and consumables, and include labor and supervisory
personnel, repair and maintenance costs, and plant operating costs. In 1998,
production and operating costs totaled $48.3 million, a 2.5% increase over 1997.
This increase is primarily due to the inclusion of production and operating
costs associated with Trigen-BioPower, which was acquired in January 1998.
15
<PAGE>
Depreciation and amortization expense was $24.4 million in 1998,
compared with $18.2 million in 1997. The increase is primarily attributable to
the addition of Trigen-BioPower depreciation expense in 1998.
General and administrative expenses increased $4.0 million to $36.4
million in 1998, a 12.3% increase over 1997. Contributing to the increase was
the inclusion of 1998 Trigen-BioPower general and administrative expenses and a
$2.0 million increase in insurance and employee-related costs, and the costs of
pursuing the Oklahoma City antitrust lawsuit against OG&E. All of the 1998 costs
of the lawsuit were expensed in 1998, and a gain, if any, will not be recognized
until a final judgment is affirmed on appeal or a final settlement is
consummated.
OTHER INCOME/(EXPENSE)
Interest expense increased $4.8 million to $23.7 million in 1998
primarily due to financing the Trigen-BioPower acquisition and the purchase of
an additional 48% interest in the Trigen-Nations Energy Company Limited
Partnership.
Other income, net was $5.6 million in 1998, an increase of $3.1 million
over 1997. The increase primarily results from gains during 1998 of $2.1 million
from the sale of nitrogen oxide emission allowances and $1.7 million from an
insurance settlement.
INCOME TAXES
Our effective tax rate is determined primarily by the federal statutory
rate of 35% and state and local income taxes. The effective tax rate was 41.1%
in 1998 and 41.0% in 1997.
LIQUIDITY AND FINANCIAL POSITION
We ended 1999 with total debt of $441.2 million compared with $375.1
million at year-end 1998. Stockholders' equity increased to $160.0 million in
1999 from $147.9 million in 1998. Our working capital deficit was $14.6 million
at year end 1999 compared with a working capital deficit of $9.5 million at
year-end 1998. At December 31, 1999 and 1998, cash and cash equivalents were
$20.0 million and $14.7 million, respectively, of which $13.6 million and $13.3
million, respectively, was restricted as to use. See Note 7 of the Notes to
Consolidated Financial Statements for information on the restrictions.
Our principal sources of funds are proceeds from new borrowings and
cash from operations. In 1999, $38.6 million was generated from operating
activities compared with $36.4 million in 1998 and $23.3 million in 1997. During
1999 we invested $93.6 million in capital expenditures, $5.8 million for the
acquisition of energy facilities, and paid dividends of $1.7 million to
shareholders. These expenditures were financed by cash generated from operating
activities and by $65.1 million of net new borrowings.
On April 4, 1997, we entered into a $160.0 million revolving credit
agreement with several banks. This facility was used to repay indebtedness
outstanding under a $62.5 million credit facility entered into in 1995. The
$160.0 million facility is for an initial period of three years and may be
extended by a total of two one-year periods. Borrowings under the facility bear
interest, at our option, at an annual rate equal to the base rate or the LIBOR
rate plus 3/4%. The base rate is the higher of the prime lending rate or the
Federal Reserve reported Federal funds rate plus 1/2%. On June 10, 1997, we
amended the $160.0 million credit agreement by reducing the facility to $125.0
million and entered into a $35.0 million revolving credit facility with the same
group of banks. The new facility is for an initial 364-day period and may be
extended annually at the option of the banks. The terms and conditions of both
facilities are the same. On September 23, 1998, the $125.0 million three year
facility was increased by $35.75 million and the initial period was increased by
one year. The base rate is the higher of the prime lending rate or the Federal
Reserve reported Federal funds rate. The average effective rate on the facility
was 6.0% in 1999 and the rate at December 31, 1999 was 7.2%. On December 30,
1998, we borrowed from an affiliate, Cofreth American Corporation, $50.0 million
for acquisitions and project development. The $50.0 million was initially used
to partially pay down the corporate facility. The $50.0 million is subordinate
and junior in right of payment to all other debt. The subordinated debt may be
redeemed in whole or in part at the option of Cofreth American Corporation with
the net proceeds of an equity sale by the Company. The debt matures on December
31, 2010 and the interest rate is 7.38%.
At December 31, 1999, we had $2.8 million of borrowings available under
our credit facilities for working capital and general corporate purposes. Our
loan agreements contain various restrictions and conditions with which we are in
compliance (See Note 23 for default information related to Grays Ferry
Cogeneration Partnership). Certain loan
16
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agreements restrict payments by subsidiaries to the Company, unless the payments
are for specified purposes or the subsidiary meets certain covenants. Management
believes that cash generated from operations, borrowings available under our
credit facilities, the ability to obtain financing from our affiliates, and
access to capital markets provide adequate resources to meet ongoing operating
needs and future capital expenditures related to the existing business and
development of new projects. See Note 13 of the Notes to Consolidated Financial
Statements for information on long-term debt.
During 1999, stockholders' equity increased $12.1 million to $160.0
million. This increase reflects $11.2 million of net earnings, $1.5 million from
the issuance of common stock, $.5 million of amortization of unearned
compensation related to restricted shares and a $.8 million cumulative
translation adjustment, partially offset by $1.7 million of dividend payments to
shareholders and the purchase of 14,000 shares of common stock for the treasury
at a cost of $.2 million.
CAPITAL EXPENDITURES
Capital expenditures were $93.6 million in 1999 compared with $42.9
million in 1998 and $39.4 million in 1997, as we continue to invest in capital
improvements to increase efficiency, reduce costs, pursue new opportunities,
expand production and improve facilities. Capital expenditures during 1999
included construction of facilities in St. Louis, MO, Baltimore, MD, Ashtabula,
OH, College Park, MD, Decatur, AL, Tampico, Mexico and St. Mary's, GA.
ENVIRONMENTAL EXPENDITURES
Our facilities are subject to governmental requirements with respect to
the discharge of materials and otherwise relating to protection of the
environment. We spent approximately $2.9 million and $3.9 million in 1999 and
1998, respectively, to comply with these requirements and estimate that our
expenditures for environmental compliance in 2000 through 2002 will be
approximately $11.2 million in the aggregate. These expenditures include
improvements at certain facilities for air emission control equipment as
required by the United States Clean Air Act (the "Clean Air Act"), wastewater
discharge control equipment, asbestos control and replacement of CFC
refrigerants.
ACQUISITIONS
On January 22, 1998, we acquired all of the capital stock of Power
Sources, Inc. (renamed Trigen-BioPower, Inc.), a biomass-to-energy power plant
developer and operator, for a cash price of $44.1 million. On September 23,
1998, we purchased an additional 48% interest in Trigen-Nations Energy Company
Limited Partnership from Nations Energy Corporation for $21.3 million. On June
22, 1999, we purchased the final 1% of the limited partnership for $.3 million.
The acquisitions were funded from our existing credit facilities. See Note 6 of
the Notes to Consolidated Financial Statements for information on the
acquisition.
IMPACT OF NEW ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires costs of start-up activities and
organizational costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. We
adopted SOP 98-5 effective January 1, 1999. The effect of the adoption was an
after-tax charge of $4.9 million which was reported as a cumulative effect of a
change in an accounting principle.
Based on preliminary analyses, we do not expect that the future
adoption of Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS No. 133") will have a
material effect on the Company's results of operations or financial condition.
We will adopt SFAS No. 133 effective January 1, 2001.
YEAR 2000 DATE CONVERSION
We experienced no material problems with our information systems or
with our customers or suppliers with which we deal, as a result of the date
change to the year 2000. We spent approximately $1.0 million for the years 1997
through 1999 to make the required modifications to our systems. There was no
material effect on our results of operations as a result of the Year 2000 issue.
No significant information technology projects or capital spending were deferred
as a result of our Year 2000 program.
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<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not engage in the trading of market risk sensitive instruments
in the normal course of business. Our short and long-term debt is subject to
fixed and variable interest rates including rates primarily based on LIBOR.
An analysis of debt is found in Notes 12 and 13 of the Notes to Consolidated
Financial Statements, Short-Term Debt and Long-Term Debt, included in this
Annual Report. Based upon the debt balances at December 31, 1999, a change in
the LIBOR rate of .25% would have a corresponding change in interest expense
of approximately $.8 million per year when three-month LIBOR is under 6.0%
ranging to approximately $.7 million per year when three-month LIBOR is over
7.5%. Three-month LIBOR at December 31, 1999 was 6.00125%.
We use financial instruments to limit the financial risk of increases
in interest rates on our floating rate debt. The differential to be paid or
received under financial instruments is accrued and recognized in interest
expense as interest rates change. As of December 31, 1999, we had outstanding
interest rate swap, cap and collar agreements related to $39.4 million of debt
outstanding, with an average fixed interest rate of 6.2% and an average
remaining life of 5 years. The fair value of the swap, cap and collar was a
receivable of $1.5 million at December 31, 1999. We do not expect these
financial instruments to have a material effect on our earnings or cash flows or
on the fair value of these instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedules that are
filed as part of this Annual Report begin on page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Our principal accountant for the fiscal years ending December 31, 1994,
December 31, 1995, December 31, 1996 and December 31, 1997 was KPMG Peat Marwick
LLP ("KPMG"). In 1998, we made a decision to change our principal accountant for
our fiscal year ending December 31, 1998, for the reason set forth below. In
1998, the Audit Committee and the Board of Directors of the Company approved
this determination.
KPMG is also in the business of providing consulting services to
clients with respect to issues related to the energy business. In 1997, a
dispute arose between the Company and the consulting services division of KPMG
with respect to the conduct of consulting services provided to a third party.
That dispute was not resolved to our satisfaction. The change in principal
accountant was not due to any matter regarding KPMG's accounting services.
KPMG's report on our financial statements for 1996 and 1997 did not contain an
adverse opinion or a disclaimer of opinion, nor was it qualified or modified as
to uncertainty, audit scope or accounting principles. Neither were there, during
the 1996 and 1997 fiscal years or the period since December 31, 1997, any
disagreement with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of KPMG, would have caused it
to make reference to the subject matter of the disagreement in connection with
its report.
In 1998, the Board of Directors selected Arthur Andersen LLP as our new
principal accountant. This selection was presented to our shareholders and
ratified at our annual meeting of shareholders, which took place on May 19,
1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
CLASS A: serving until the annual election of directors in 2001 or until a
successor is elected and qualified:
PATRICK BUFFET, 46, was elected a Director of Trigen on September 9,
1998. Since 1998, he has been Executive Vice President of Suez Lyonnaise des
Eaux ("Suez Lyonnaise"). From 1994 to 1998 he was Director of Industrial
Holdings and Strategy of Societe Generale de Belgique, a subsidiary of Suez
Lyonnaise.
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<PAGE>
RICHARD E. KESSEL, 50, has been President and Chief Executive Officer
of Trigen since January 19, 2000 and has served as a Director of Trigen since
1994. He is also a member of the Executive Committee. He was Executive Vice
President and Chief Operating Officer of Trigen from 1993 to January 19, 2000.
CLASS B: serving until the annual election of directors in 2002 or until a
successor is elected and qualified:
CHRISTINE MORIN-POSTEL, 53, has served as a Director and non-executive
Chairman of the Board since January, 2000. She has been Chief Executive Officer
and Chairman of the Management Committee of Societe Generale de Belgique since
1998. From 1996 to 1998, she was Chairman and Chief Executive Officer of
Compagnie Hypothecaire and Credisuez. She was a General Partner of Financiere
Indosuez from 1993 to 1995. She served as a Director of Trigen from December,
1986 to June, 1993.
GEORGE F. KEANE, 70, has served as a Director since 1994 and was
non-executive Chairman of the Board from 1994 to January 19, 2000. He is the
Chairman of the Audit Committee and a member of the Nominating Committee. From
1993 through 1996, he served as President Emeritus and Senior Investment Adviser
to The Common Fund, a company that he helped organize and that manages the
investment of over $17 billion in endowment funds and operating cash for more
than 1,300 member colleges, universities and independent schools. Since 1996,
Mr. Keane has been self-employed. He serves on the boards of Universal Stainless
& Alloy Products, Global Pharmaceutical, United Water Resources, The Bramwell
Funds, Nicholas-Applegate Investment Trust and Northern Trust of Connecticut.
PHILIPPE BRONGNIART, 61, has been a Director of Trigen since 1997.
Since 1997 he has been Directeur General of Suez Lyonnaise. From 1993 to 1997 he
was General Manager of Societe Lyonnaise des Eaux ("Lyonnaise"). He has been
Chairman and Chief Executive Officer of Sita since 1988.
OLIVIER DEGOS, 38, since 1995, has been Chief Financial Officer of
ELYO, a subsidiary of Suez Lyonnaise engaged in energy management. From 1994 to
1995, was Deputy Chief Financial Officer of Sita, a waste services company and
subsidiary of Suez Lyonnaise.
CLASS C: serving until the annual election of directors in 2000 or until a
successor is elected and qualified:
CHARLES E. BAYLESS, 56, has served as a Director of Trigen since 1994.
He is a member of the Compensation Committee, the Nominating Committee and the
Audit Committee. Since 1998 he has been President and Chief Executive Officer of
Illinova Power Company. He was Chairman of Tucson Electric Power Company
("Tucson Electric"), an electric utility corporation, from 1992 to 1998. From
1990 to 1998 he was President and Chief Executive Officer of Tucson Electric. He
became Chairman, President and Chief Executive Officer of UniSource Energy on
January 1, 1998. UniSource Energy is Tucson Electric's holding company.
MICHEL BLEITRACH, 54, has been a Director of Trigen since 1995. He is
Chairman of the Compensation Committee. Mr. Bleitrach has been the Chairman of
Elyo since 1995 and has been the Chief Executive Officer of Elyo since 1993.
DOMINIQUE MANGIN D'OUINCE, 50, has been a Director of Trigen since
1995. He is a member of the Executive Committee. Mr. Mangin d'Ouince has been an
Executive Vice President and Managing Director of Elyo since 1995 and was a
Managing Director in charge of Business Development of Lyonnaise from 1990 to
1997.
EXECUTIVE OFFICERS
The executive officers of the Company include Richard E. Kessel, who is
also on the Board of Directors, and the following:
BENOIT ANSART, 39, has been Vice President - Energy Marketing and
Development since September, 1999. He was Director of Engineering for Trigen
from 1993 to 1999.
DANIEL FIORE, 54, has been Vice President - Project Services for Trigen
since June, 1999. From 1995 to 1999 he was Vice President - Fossil Services
worldwide for Burns & Roe, a consulting, engineering and enterprises
construction company.
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<PAGE>
MARK C. HALL, 32, has been Vice President, External Affairs since
August, 1999. From 1998 to 1999, he was Director of Government Affairs for
Trigen. From 1997 to 1998, he was Manager of Environmental Health and Safety and
Manager, Legislative and Regulatory Affairs for Trigen. From 1995 to 1997, he
was an environmental engineer for Trigen.
JAMES F. LOWRY, 61, has been Vice President of Mergers and Acquisitions
since 1997. He was Vice President, Development of Trigen from 1995 to 1997. From
1993 to 1995 he was a principal in International Ventures Group, which provided
consulting services to developing businesses in countries of the former USSR.
JEAN M. MALAHIEUDE, 61, has been Executive Vice President, Engineering
since 1997, and also heads the Company's Project Development Division. He was
Vice President, Engineering of Trigen from 1987 to 1997. Since 1987 he has been
Executive Vice President of Cofreth-American Corporation ("CAC").
EUGENE E. MURPHY, 65, has been Vice President and General Counsel of
Trigen since 1986. He has been Secretary of Trigen since 1988. From 1986 to 1994
he was a Director of Trigen.
DANIEL J. SAMELA, 52, has been Controller of Trigen since 1995. From
1991 to 1995 he was Chief Financial Officer of the Dealer Division of Savin
Corporation, a distributor of office machinery and equipment.
STEVEN G. SMITH, 58, has been Vice President since 1998. Since 1997 he
has headed the Operations Division of the Company. Since 1990 he has been
President of Trigen-Philadelphia Energy Corporation, a subsidiary of the
Company.
MARTIN S. STONE, 64, has been Vice President and Chief Financial
Officer of Trigen since 1998. From 1971 through 1997, he held various positions
at Helmsley Enterprises, Inc., including Treasurer, the last being Vice
President and Corporate Secretary.
STEPHEN K. SWINSON, 42, has been Vice President since 1998. Since 1997
he has headed the Technology Division of the Company. From 1996 to 1997 he was
President of the Western Region of the Company. From 1995 to 1997 he was
President of Trigen-Colorado Energy Corporation, a subsidiary of the Company,
and from 1993 to 1997 he was President of Trigen-Kansas City Energy Corporation,
a subsidiary of the Company.
STEPHEN T. WARD, 57, has been Treasurer of Trigen since 1995. From 1988
to 1995 he was Treasurer of TI Group Inc. TI Group plc is a London-based
manufacturer of automotive and aerospace products. TI Group Inc. is their U.S.
holding company.
MICHAEL WEISER, 57, has been Vice President, Development of Trigen
since 1992. From 1986 to 1994 he was a Director of Trigen. From 1986 to 1992 he
was Treasurer of Trigen.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who own more than 10% of the Company's
common stock to file certain reports with respect to each such person's
beneficial ownership of the Company's common stock. In addition, Item 405 of
Regulation S-K requires the Company to identify each reporting person that
failed to file on a timely basis reports required by Section 16(a) of the
Exchange Act during the most recent fiscal year or prior fiscal years. The
0initial statement of beneficial ownership on Form 3 for the month of August,
1999 for Mr. Mark C. Hall, for the month of September, 1999 for Mr. Benoit
Ansart and for the month of June, 1999 for Mr. Daniel Fiore were not filed on a
timely basis. Both were newly elected officers at that time. Form 4 for the
month of December 1998 for Mr. Thomas R. Casten was not filed on a timely basis.
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ITEM 11. EXECUTIVE COMPENSATION
The following table presents before-tax information on compensation
earned, paid, awarded or accrued as of the end of fiscal years 1999, 1998 and
1997 for services by the Named Executive Officers, including options granted.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION SECURITIES PAYOUTS
(2) (4) (5)
OTHER (3) UNDERLYING ALL
NAME AND ANNUAL RESTRICTED OPTIONS/ LTIP OTHER
PRINCIPAL (1) COMPENSA- STOCK SARS PAY- COMPEN-
POSITION YEAR SALARY($) BONUS($) TION($) AWARDS($) GRANTED(#) OUTS($) SATION($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas R. Casten 1999 415,700 269,374 24,336 -0- -0- -0- 21,614
President & Chief 1998 401,700 170,000 24,070 745,313 30,000 10,992
Executive Officer 1997 390,000 -0- 24,650 -0- 30,000 11,825
at 12/31/99
Richard E. Kessel 1999 355,000 185,566 21,840 -0- -0- -0- 17,656
Executive Vice Pres 1998 342,790 146,000 21,574 536,625 19,000 8,905
Chief Operating 1997 332,800 -0- 22,058 -0- 19,000 8,920
Officer at 12/31/99
Eugene E. Murphy 1999 200,000 78,408 19,318 -0- -0- -0- 11,877
Vice President and 1998 176,750 50,000 19,034 258,375 9,000 8,359
General Counsel 1997 171,600 -0- 19,439 -0- 9,000 8,223
Steven G. Smith 1999 230,000 103,587 55,236 -0- -0- -0- 13,599
Vice President 1998 220,000 101,850 14,874 357,750 12,500 8,933
1997 187,575 23,162 14,558 -0- 12,500 7,616
Martin S. Stone (6) 1999 204,000 75,692 14,240 -0- -0- -0- 11,372
Vice President and 1998 86,923 24,000 6,064 125,531 9,000 4,267
Chief Financial
Officer
</TABLE>
- -----------------------
(1) Amounts shown in this column are bonuses earned in the year shown, rather
than bonuses paid in the year shown, except that, the following amounts included
in the Bonus column were paid in 1998 for prior years' work: Mr. Kessel -
$21,000 for 1997, Mr. Smith - $40,250 for 1996, and Mr. Murphy - $7,500 for
1997.
(2) For each of the individuals listed, in 1999 the portion of Other Annual
Compensation which is auto allowance for each respective individual is as
follows: Mr. Casten - $23,296, Mr. Kessel - $20,800, Mr. Murphy - $18,278, Mr.
Smith - $14,100, and Mr. Stone - $13,200. For Mr. Smith the portion of his Other
Annual Compensation which is a relocation reimbursement is $40,096. For each of
the individuals listed, in 1998 the portion of Other Annual Compensation which
is auto allowance for each respective individual is as follows: Mr. Casten -
$23,296, Mr. Kessel - $20,800, Mr. Murphy - $18,278, Mr. Smith - $14,100 and Mr.
Stone - $5,737. In 1997, the portion of Other Annual Compensation which is auto
allowance for each respective individual is as follows: Mr. Casten - $24,192,
Mr. Kessel - $21,600, Mr. Murphy - $18,981, and Mr. Smith - $14,100.
(3) The number and value of the aggregate restricted stockholdings for the Named
Executive Officers as of December 31, 1999, including reinvested dividends, are
as follows: Mr. Casten - 38,120 shares, $662,335; Mr. Kessel - 27,447 shares,
$476,892; Mr. Murphy - 13,215 shares, $229,611; Mr. Smith - 18,298 shares,
$317,928; Mr. Stone - 9,831 shares, $170,814.
(4) Options granted in 1998 merely replaced options granted in 1997.
(5) Amount shown is the total of the Company's matching contribution to the
401(k) Plan, profit sharing contribution, and term life insurance premiums.
(6) Mr. Stone began his employment with the Company in July, 1998.
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<PAGE>
FISCAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END(#) FISCAL YEAR END($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
<S> <C> <C>
Thomas R. Casten 62,100/18,000 115,088/60,750
Richard E. Kessel 36,600/11,400 67,575/38,475
Eugene E. Murphy 13,200/10,800 27,750/18,225
Steven G. Smith 19,400/ 7,500 40,275/25,313
Martin S. Stone 1,800/ 7,200 8,413/33,650
</TABLE>
No named Executive Officer exercised options in 1999.
Compensation of Directors
Directors who are regularly employed officers of the Company receive no
fees for serving as directors of the Company. Each non-officer director receives
$20,000 (the Chairman receives $30,000) per year plus $1,000 per day of meetings
of the Board or Committee of the Board attended, and each may elect to receive
such compensation in shares of common stock. Upon his election to the Board in
1999, Olivier Degos received options to purchase 10,000 shares of common stock
exercisable at $15.938 per share (the price per share on the date of the grant).
Upon his election to the Board in 1998, Patrick Buffet received options to
purchase 10,000 shares of common stock exercisable at $10.625 per share (the
price per share on the date of the grant).Upon his election to the Board in
1997, Philippe Brongniart received options to purchase 10,000 shares of common
stock exercisable at $25.00 per share (the price per share on the date of the
grant). Upon their election to the Board in 1995, Messrs. Bleitrach and Mangin
d'Ouince each received options to purchase 10,000 shares of common stock
exercisable at $22.13 per share (the price per share on the date of the grant).
During 1994, each individual who was then a Director received options to
purchase 10,000 shares of common stock (20,000 for the Chairman) exercisable at
$15.75 per share (the price per share on the date of the grant). In July 1996
the Chairman received additional options to purchase 10,000 shares of Common
Stock exercisable at $18.75 per share. Each Director is reimbursed for the
out-of-pocket costs of attending meetings. Ms. Christine Morin-Postel did not
receive options upon her election to the Board when elected Chairman in January,
2000.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Employment
Agreements") with Thomas R. Casten, Richard E. Kessel and Eugene E. Murphy,
("Named Executive Officers"). Each of the Employment Agreements was initially
for a period of three years commencing as of August 12, 1994 and is renewable
for additional annual extensions unless terminated by either party. The base
salaries under the Employment Agreements are subject to review by the
Compensation Committee. The Employment Agreements also provide for the payment
of incentive compensation. An Employment Agreement for a particular Executive
Officer contains other specified benefits only if those benefits have been
approved by a member of the Board of Directors who has been authorized to review
and approve such provisions. Mr. Casten's employment terminated on January 19,
2000.
On January 19, 2000 Mr. Casten entered into an agreement with Elyo
pursuant to which Mr. Casten shall sell his shares of Stock in Trigen to Elyo,
and Elyo shall purchase such shares on the thirty-first (31st) calendar day
following the filing of Schedule TO by Elyo and certain of its affiliates in
connection with the offer by T Acquisition Corp., a Delaware corporation and an
indirect, wholly owned subsidiary of Elyo, to purchase any and all of the
outstanding shares of Trigen.
Also on January 19, 2000, Mr. Casten entered into a Separation
Agreement and Release (the "Separation Agreement") with Trigen whereby Mr.
Casten resigned as a director and officer of Trigen effective January 19, 2000.
Pursuant to the Separation Agreement, Mr. Casten resigned from his positions as
President, Chief Executive Officer and a director of Trigen and is eligible for
salary and benefits continuation until the earlier of (a) January 19, 2002, or
(b) the date on which he breaches any of his obligations under the Separation
Agreement. Mr. Casten's obligations include non-disparagement, non-competition,
cooperation, non-solicitation and confidentiality covenants. If Mr. Casten
breaches any of these covenants, his right to payments under the terms of the
Separation Agreement will be extinguished. Restricted
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<PAGE>
stock and unvested options held by Mr. Casten will continue to vest in
accordance with their terms as if Mr. Casten remained employed by the Company
and to the extent not vested on January 19, 2002 will become fully vested on
that date to the extent not previously canceled by reason of a breach of the
Separation Agreement. Alternatively, immediately prior to the effective time of
the merger, if the merger occurs, (i) Mr. Casten's options will be canceled and
he will receive for each share subject thereto the excess of the merger
consideration over the exercise price, and (ii) Mr. Casten's shares of
restricted stock will be canceled and he will receive an amount per share equal
to the merger consideration in respect of one-fourth of such shares and will be
eligible to receive on January 19, 2002 an amount per share equal to the merger
consideration in respect of three-fourths of such shares. Mr. Casten is entitled
to remain a general partner of the Trenton District Energy Company ("TDEC"), but
may not interfere with or participate in the day-to-day operations of TDEC.
Trigen has agreed that if TDEC refinances, Trigen will, subject to certain
exceptions, use its good faith efforts so that Mr. Casten does not recognize
income as a result of such refinancing as long as such efforts do not adversely
impact TDEC, Trigen or its affiliates.
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
All decisions on compensation of the Company's executive officers,
including decisions about awards under certain of the Company's stock-based
compensation plans, are made by the members of the Compensation Committee, each
of whom is a non-employee director. This report addresses the Company's
compensation policies for 1999 as they affected Messrs. Casten, Kessel, Murphy,
Smith and Stone, the chief executive officer and the four highest paid executive
officers of the Company for 1999 (collectively, the "Named Executive Officers").
COMPENSATION POLICIES
The Compensation Committee's executive compensation policies are
designed to (a) provide competitive compensation opportunities when financial
and operational performance attains pre-set ambitious levels, (b) reward
executives consistent with the Company's performance, (c) recognize individual
performance and responsibility, (d) underscore the importance of shareholder
value creation, and (e) assist the Company in attracting, retaining and
inspiring qualified executives. The overall focus of the compensation policy is
to balance the near-term goals and needs of management and other employees with
the long-term perspective to drive performance and results to provide a
consistent commitment to the growth of the Company and enhance the creation of
shareholder value.
The principal elements of compensation employed by the Committee to
meet these objectives are base salaries, annual cash incentives, business
development incentives, and long term stock-based incentives. By design, the
variable or "at-risk" components of compensation are proportionately greater for
more senior executives, in recognition of their greater potential impact on the
Company's results.
All compensation decisions are determined following a detailed review
of many factors that the Committee believes are relevant, including external
competitive data, the Company's achievements over the past year, the
individual's contributions to the Company's success, any significant changes in
role or responsibility, and the reasonableness of compensation in relation to
that of other employees.
The competitiveness of the Company's total compensation program
(incorporating base salaries, annual cash bonuses, and long term stock-based
incentives) is assessed regularly with the assistance of an independent expert
compensation consultant. Comparisons are made with executives in similarly sized
firms with comparable responsibilities. Data for these comparisons is drawn from
two primary sources: (1) a national compensation survey of similar publicly
traded companies, and (2) the proxy statements of identified competitors,
including all companies within a selected group of peer industry organizations
(the "Compensation Peer Groups").
One of the guiding principles is to pay at a level that allows the
Company to compensate key executives competitively compared with similarly
placed executives within the Compensation Peer Groups. This comparison is
performed while considering the Company's performance in relation to the
performance results of those companies. In general, the Committee intends to pay
base salary levels at the median or average levels of competitive compensation
for executives with comparable responsibilities in the Company's Compensation
Peer Groups. In addition to base salary, the Company's total compensation
program includes an annual cash incentive plan, a business development growth
incentive and a long-term stock-based incentive program. The targeted total
compensation levels for the Named Executive Officers
23
<PAGE>
are intended to be consistent with competitive levels (as measured by the total
compensation levels of similar positions at the Compensation Peer Groups) when
the Company attains its targeted corporate performance objectives. Actual
payouts, if any, depend upon actual Company performance. Thus, the total
compensation levels and individual compensation components received in any
particular year could be demonstrably lesser or greater than the Compensation
Peer Groups' average.
The Company compensation philosophy for senior management emphasizes
pay at risk, highlights a long-term performance results perspective, provides
executive commitment via stock ownership, and bolsters the creation of
shareholder value.
BASE SALARY. Base salaries for all Named Executive Officers, including
the Chief Executive Officer, are reviewed by the Committee on an annual basis.
In determining appropriate base salaries, the Committee considers external
competitiveness, the roles and responsibilities of the individual, the
reasonableness of compensation in relation to that of other employees, and the
contributions of the individual.
ANNUAL CASH INCENTIVES. The Company believes that its incentive
compensation plan should reward executives and other employees for their
contributions to the success and profitability of the business, as well as the
achievement of their personal goals and objectives which support the overall
growth of the Company. Incentives paid under the Incentive Compensation Plan
reflect the Committee's assessment of the degree to which the Company and
business units met predetermined earnings per share and profitability
objectives, and the executives and other participants achieved their individual
goals and objectives that were agreed to between the Company and the executive.
All Named Executive Officers, including the Chief Executive Officer, are
eligible to participate in this program.
LONG TERM STOCK-BASED INCENTIVES. The Company also believes that it is
essential to link management and shareholder interests. To meet this objective,
the Company implemented the 1994 Stock Incentive Plan ("Stock Plan"), which
allows the Committee to grant stock options, restricted stock, performance
shares, and stock appreciation rights to help attract, retain, and inspire
executives and other employees by providing them with an opportunity to share in
the Company's success. In determining actual awards, the Committee considers the
externally competitive market, the contributions of the individual to the
success of the Company, and the need to retain the individual over time. All
Named Executive Officers, including the Chief Executive Officer, are eligible to
participate in this program. The Company implemented a long-term program in 1997
under the Stock Plan in which senior management, including all Named Executive
Officers, were granted a combination of incentive stock options and restricted
shares. A key component of this program is for management to meet share
ownership goals in order to participate fully in this program.
By encouraging employees to obtain a stake in the Company's on-going
success, the Company believes this will focus employees' attention on managing
the Company as a shareholder with an equity position. The Company intends to
continue granting stock options on a periodic basis to its employees,
executives, and directors.
The Committee has reviewed Internal Revenue Code Section 162(m) and has
determined that, at present, its limitations are not applicable to the Company.
Annually, the Committee will continue to consider the implications of this
statute.
The Committee's policy regarding the compensation of other executive
officers of the firm is consistent with the approach outlined here.
1999 COMPENSATION
As in prior years, the Company engaged the services of an outside,
independent compensation consulting firm to conduct and verify to the Committee
its findings concerning the compensation levels and practices of the
Compensation Peer Groups and its recommendations for compensation actions for
the Named Executive Officers. As outlined under "Compensation Policies", the
Committee is thoroughly committed to the Company's variable pay concept. Under
this philosophy, the Company is driven to leverage its compensation dollars and
reward high performance levels when the Company's shareholder value added levels
warrant.
Base salaries paid in 1999 to the Named Executive Officers, including
the CEO, reflect the Committee's review of external competitiveness, the roles,
responsibilities and contributions of the individuals and the reasonableness of
compensation in relation to that of other employees.
24
<PAGE>
Incentive Compensation Plan incentives to be paid to all Named
Executive Officers for 1999 were determined in conjunction with the Committee's
assessment of the Company's performance with respect to predetermined earnings
per share and profitability objectives. Overall, the Company's performance as
measured by earnings per share was significantly above the target levels
established in 1999 for the Incentive Compensation Plan. Accordingly, the CEO
and the other Named Executive Officers received an incentive proportionately
greater than their individual target levels for 1999. In addition to the
Corporate earnings per share target, the business units in 1999 also were
measured by an operating income performance criteria. Most business units did
achieve their goals although two business units were below their threshold, and
the remaining business units were slightly below their assigned threshold
levels. Overall, the incentive levels are greater than the approved target
levels for those Named Executive Officers who did receive an incentive.
The Company launched a long-term stock-based compensation program in
1997. The program's primary objective is to focus management on increasing
shareholder value. The program has three components: a) stock ownership goals,
b) a restricted share award, and c) an incentive stock option grant. The
restricted shares, which have a life cycle of eight years, will remain
restricted until the Company announces accumulated basic earnings per share over
four consecutive fiscal quarters of $2.08. This earnings target represents a
doubling of the Company's 1996 earnings per share figure. In addition to the
earnings target, the shares are also restricted from vesting unless the
participant achieves his/her prescribed stock ownership levels. Each
participant, including the Named Executive Officers, have been provided with a
stock ownership target. The stock ownership targets are stated as a percentage
of the participant's restricted share award and the percentages are progressive
based on the increase in role and responsibility.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION IN COMPENSATION
DECISIONS
COMPENSATION COMMITTEE
Michel Bleitrach
Charles E. Bayless
Olivier Degos
There are no Compensation Committee interlocks. Mr. Bleitrach, a
Director of Trigen, is the Chairman and Chief Executive Officer of Elyo. Mr.
Bayless, a Director of Trigen, is Chairman of Illinova Power. Mr. Degos is the
Chief Financial Officer of Elyo.
STOCK PERFORMANCE INFORMATION
The following graph assumes the investment on August 12, 1994 of $100
in each of the four investment alternatives. For the Standard & Poor's Mid-Cap
400 Index and the Peer Group, the initial investment was assumed to be allocated
among the respective companies based on their market capitalizations at the
start of the period. The graphs assume dividends were reinvested when received.
The Peer Group is composed of companies in the independent power producer
sector, and includes the Company (which represented 4.0% of the market
capitalization of the Peer Group at the start of the period). The other
companies in the "Peer Group" are AES Corporation, Calpine Corp., Cogeneration
Corp. of America, Destec Energy, Inc., Kenetech Corp., Magma Power Company
(acquired by CalEnergy Company, Inc. in March 1995), MidAmerican Energy Holdings
(formerly CalEnergy Company Inc.) and Sithe Energies USA, Inc., during the
periods that each company has been publicly traded.
25
<PAGE>
[INSERT GRAPHIC]
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of the Company's common
stock as of January 27, 2000, of each person known by the Company to own
beneficially more than 5% of the common stock outstanding as of such date.
Except as otherwise indicated, all shares are owned directly. Unless otherwise
noted, each of the stockholders has sole voting and investment power with
respect to the shares shown.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
<S> <C> <C>
Suez Lyonnaise des Eaux 6,507,944(1) 52.5
1, rue d'Astorg
Paris, France 75008
Societe Generale de Belgique 6,507,944(1) 52.5
Rue Royale 30
B-100 Brussels, Belgium
Elyo 6,507,944(1) 52.5
235, Avenue Georges Clemenceau
Nanterre, France 92000
Cofreth American Corporation ("CAC") 4,870,670(1) 39.3
c/o John M. Malahieude
One Water Street
White Plains, New York 10601
Compagnie Parisienne de Chauffage Urbain 1,637,274(1) 13.2
185 Rue de Bercy ("CPCU")
75012 Paris, France
Thomas R. Casten 1,147,354(2) 9.3
One Water Street
White Plains, New York 10601
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C>
Dimensional Fund Advisors Inc. 847,200(3) 6.8
Investment Counselors of Maryland, Inc. 800,000(4) 6.5
</TABLE>
- -----------------------
(1) Suez Lyonnaise owns 100% of Societe Generale de Belgique which owns
100% of Elyo, which directly owns 80.5% of the outstanding voting stock of CAC,
and may be deemed to own beneficially 90.7% of the outstanding voting stock of
CAC due to its ownership of stock in certain other entities which are themselves
owners of outstanding voting stock of CAC. CPCU is a direct subsidiary of Elyo.
All shares directly held by CAC or CPCU are indirectly held by Elyo, Societe
Generale de Belgique and Suez Lyonnaise.
(2) Includes 43,950 shares held by his wife and children, 322,832 shares
held by the Casten Family Limited Partnership, and 85,171 shares owned by an
S-corporation in which he shares beneficial ownership with two other officers of
the Company.
(3) Based upon information filed by Dimensional Fund Advisors Inc. with the
Securities and Exchange Commission in a report on Schedule 13G dated February 4,
2000. Dimensional Fund Advisors Inc. is a registered investment advisor to
managed portfolios. As such, it may be deemed to be the beneficial owner of the
shares of stock set forth above.
(4) Based upon information filed by Investment Counselors of Maryland, Inc.
with the Securities and Exchange Commission in a report on Schedule 13G dated
February 10, 2000. Investment Counselors of Maryland, Inc. is a registered
investment advisor to managed portfolios. As such, it may be deemed to be the
beneficial owner of the shares of stock set forth above.
The following table sets forth information furnished by the following
persons and, where possible, confirmed from records of the Company, as to the
number of shares of the Company's common stock beneficially owned by the
directors, the Named Executive Officers of the Company and all directors and
executive officers as a group as of January 27, 2000.
<TABLE>
<CAPTION>
AMOUNTS IN
COL. 2 INCLUDE
THE FOLLOWING
SHARES SUBJECT
AMOUNT AND NATURE TO ACQUISITION
OF BENEFICIAL PERCENT THROUGH CURRENTLY
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS EXERCISABLE OPTIONS
<S> <C> <C> <C>
Thomas R. Casten 1,147,354(2)(6) 9.3 62,100
George F. Keane 57,275(3)(5) (4) 30,000
Richard E. Kessel 83,413 (4) 36,600
Charles E. Bayless 19,949(5) (4) 10,000
Michel Bleitrach 14,485(5) (4) 10,000
Philippe Brongniart 12,933(5) (4) 10,000
Patrick Buffet 11,822(5) (4) 10,000
Olivier Degos 10,764(5) (4) 10,000
Dominique Mangin d'Ouince 14,856(5) (4) 10,000
Eugene E. Murphy 261,899(6) 2.1 13,200
Steven G. Smith 45,543 (4) 19,400
Martin S. Stone 14,925 (4) 1,800
All directors and executive officers
as a group (21 persons) 2,077,406(2) 16.8 318,200
</TABLE>
- --------------
(1) Includes shares subject to acquisition through currently exercisable stock
options. See column 4 for amounts.
(2) See Note 2 to the preceding table.
(3) Includes 15,000 shares held by the Keane Family Trust of which George Keane
is the trustee, and 275 shares held by his wife.
(4) Less than 1% of the outstanding shares.
(5) Includes shares acquired through the 1994 Director Stock Plan.
(6) Includes 85,171 shares owned by an S-Corporation in which he is a director.
27
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See information presented under Compensation Committee Interlocks and
Inside Participation in Compensation Decisions under Item 11 above.
TRENTON PARTNERSHIP
Trigen-Trenton Company, L.P., a limited partnership ("Trigen-Trenton"),
which was formed in 1982, four (4) years before the formation of the Company,
owns and operates the community energy system in Trenton, New Jersey. Trenton
Energy Corporation, a wholly owned subsidiary of Trigen ("TEC"), is the managing
general partner of Trigen-Trenton and owns a 72.25% partnership interest in
Trigen-Trenton. Mr. Casten, who was the chief executive officer and a director
of Trigen until January 19, 2000, Mr. Weiser, who is an officer of Trigen, and
Jeanne N. Murphy, whose husband is an officer of Trigen, are general partners in
Trigen-Trenton owning approximately 1.04%, 0.46%, and 0.12%, respectively, of
the partnership interests. CDC is also a general partner of Trigen-Trenton and
owns 2.08% of the partnership interests. Messrs. Casten, Weiser and Murphy own
approximately 59.5%, 23% and 17.5%, respectively, of the shares of common stock
of CDC. The remaining general and limited partnership interests in
Trigen-Trenton are owned by persons not affiliated with the Company. The Company
itself owns directly a 7.48% limited partnership interest in Trigen-Trenton.
RELATIONSHIPS WITH THE ELYO GROUP
LICENSE AGREEMENT. Elyo and the Company have entered into an
Intercompany Services and License Agreement (the "License Agreement"). Under the
License Agreement, Elyo will continue to provide to the Company on a
non-exclusive basis technical assistance and technical knowledge. The Company
will have the right to use such technical knowledge to construct, operate and
maintain community energy systems within North America as well as the right to
use patents and licenses of Elyo and its subsidiaries in connection with the
generation and distribution of electricity, chilled water and waste
incineration. Elyo has also agreed that it may make available to the Company,
upon request, new support letters or other similar credit support, at mutually
agreed rates. Pursuant to the License Agreement the Company will have the first
right to develop any corporate opportunities relating to the application of the
licensed technologies in North America that are presented to Elyo or its
subsidiaries. Elyo also agreed that neither it nor its subsidiaries will engage
in activities that may cause the Company to become or be regulated as a
public-utility holding company or a subsidiary of a public-utility holding
company under federal, state or local laws or regulations. The initial term is
for three years with automatic two year renewals, unless terminated sooner as a
result of a default or bankruptcy or related event or a change of control with
respect to Trigen. The Company reimbursed Elyo Group and/or paid third party
providers on behalf of Elyo $465,515 for salary, bonus, and expenses paid to
Jean Malahieude, an Executive Officer of Trigen, and an additional $235,237 for
benefits of Mr. Malahieude and other professionals in 1999.
SUBORDINATED DEBT. On December 30, 1998 CAC loaned the Company $50
million at 7.38% in subordinated debt pursuant to an agreement which requires
repayment on December 31, 2010. Since January 1, 2000 CAC has loaned the Company
an additional $36.0 million in intercompany loans at an interest rate equal to
the London Interbank Offered Rate plus 2.25%.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) The Financial Statements and Financial Statement Schedules
listed under "Index to Financial Statements and Financial Statement Schedules"
on page F-1 hereof are filed as part of this Annual Report.
(a) (3) The Exhibits listed under "Index of Exhibits" on pages E-1 to E-3
hereof are filed as part of this Annual Report.
(b) The following reports on Form 8-K were made during the fourth quarter
of the year ended December 31, 1999:
None.
29
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
REGISTRANT'S FINANCIAL STATEMENTS
Independent Auditors' Report........................................................................... F-2,F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998........................................... F-4
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997............. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997............. F-6
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998
and 1997........................................................................................... F-7
Notes to Consolidated Financial Statements............................................................. F-8
REGISTRANT'S FINANCIAL STATEMENT SCHEDULES
I Condensed Financial Information of the Registrant as of December 31, 1999 and 1998 and for the
Years Ended December 31, 1999, 1998 and 1997....................................................... S-1
II Valuation and Qualifying Accounts for the Years Ended December 31, 1999, 1998 and 1997.............. S-5
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
TRIGEN ENERGY CORPORATION:
We have audited the accompanying consolidated balance sheets of Trigen Energy
Corporation and subsidiaries as of December 31, 1999 and 1998 , and the related
consolidated statements of operations, cash flows and stockholders' equity for
the years then ended. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Trigen Energy
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in the accompanying index are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. These schedules, as of December 31, 1999 and 1998 and for the years
then ended, have been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly state, in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 9, 2000
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TRIGEN ENERGY CORPORATION:
We have audited the accompanying consolidated statement of operations
of Trigen Energy Corporation and subsidiaries and the related consolidated
statements of stockholders' equity and cash flows for the year ended December
31, 1997. In connection with our audit of the consolidated financial statements,
we also have audited the information in the financial statement schedules as
listed in the accompanying index for the year ended December 31, 1997. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Trigen Energy Corporation and subsidiaries for the year ended December
31, 1997, in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedules, for the year ended
December 31, 1997, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
KPMG LLP
February 3, 1998
Stamford, Connecticut
F-3
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................................. $ 15,380 $ 10,074
Accounts receivable....................................................................
Trade (less allowance for doubtful accounts of $1,266 in 1999 and $1,187 in 1998).... 46,816 35,236
Other................................................................................ 3,489 5,686
----------- -----------
Total accounts receivable............................................................ 50,305 40,922
Inventories............................................................................ 8,799 7,074
Prepaid expenses and other current assets.............................................. 7,946 8,016
----------- -----------
Total current assets............................................................. 82,430 66,086
Restricted cash and cash equivalents...................................................... 4,628 4,623
Property, plant and equipment, net........................................................ 515,840 442,755
Investment in non-consolidated partnerships............................................... 50,510 30,319
Intangible assets, net.................................................................... 46,063 49,968
Deferred costs and other assets, net...................................................... 28,035 24,405
----------- -----------
Total assets..................................................................... $727,506 $618,156
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................................................ $ 15,000 $ 15,000
Current portion of long-term debt...................................................... 19,474 16,398
Accounts payable....................................................................... 14,221 4,756
Accrued income taxes................................................................... 5,977 5,728
Accrued fuel........................................................................... 14,240 14,121
Accrued expenses and other current liabilities......................................... 28,093 19,626
----------- -----------
Total current liabilities........................................................ 97,005 75,629
Long-term debt............................................................................ 406,755 343,685
Other liabilities......................................................................... 3,584 4,254
Deferred income taxes..................................................................... 44,343 39,422
----------- -----------
Total liabilities................................................................ 551,687 462,990
Minority interests in subsidiaries........................................................ 15,796 7,238
Stockholders' equity:.....................................................................
Preferred stock--$.01 par value, authorized and unissued 15,000,000 shares.............. -- --
Common stock--$.01 par value, authorized 60,000,000 shares, issued and outstanding
12,424,762 shares in 1999 and 12,417,934 shares in 1998................................ 124 124
Additional paid-in capital............................................................. 120,376 120,595
Retained earnings...................................................................... 45,890 36,417
Unearned compensation - restricted stock............................................... (5,101) (4,967)
Cumulative translation adjustment...................................................... (1,163) (2,002)
Treasury stock, at cost, 9,670 shares in 1999 and 145,842 shares in 1998............... (103) (2,239)
------------ -----------
Total stockholders' equity....................................................... 160,023 147,928
------------ -----------
Total liabilities and stockholders' equity....................................... $727,506 $618,156
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues
Thermal energy............................................................ $212,539 $182,432 $179,527
Electric energy........................................................... 45,184 42,667 48,997
Equity in earnings/(losses) of non-consolidated partnerships.............. 7,396 4,475 (1,401)
Fees earned and other revenues............................................ 15,301 12,820 13,528
---------- ---------- ----------
Total revenues...................................................... 280,420 242,394 240,651
Operating expenses...........................................................
Fuel and consumables...................................................... 117,270 101,475 114,168
Production and operating costs............................................ 54,971 48,322 47,086
Depreciation and amortization............................................. 27,787 24,384 18,209
General and administrative................................................ 40,841 36,390 32,445
---------- ---------- ---------
Total operating expenses............................................ 240,869 210,571 211,908
---------- ---------- ---------
Operating income............................................................. 39,551 31,823 28,743
Other income (expense).......................................................
Interest expense.......................................................... (25,994) (23,742) (18,976)
Other income, net......................................................... 17,433 5,570 2,448
---------- ----------- ----------
Earnings before minority interests, income taxes, extraordinary item and
cumulative effect of a change in accounting principle...................... 30,990 13,651 12,215
Minority interests in earnings of subsidiaries............................... (3,502) (2,519) (3,699)
---------- ----------- ----------
Earnings before income taxes, extraordinary item and cumulative
effect of a change in accounting principle................................. 27,488 11,132 8,516
Income taxes................................................................. 11,380 4,575 3,491
---------- ----------- ----------
Earnings before extraordinary item and cumulative effect of a change
in accounting principle.................................................... 16,108 6,557 5,025
Extraordinary loss from extinguishment of debt, net of income tax benefit.... -- (299) --
Cumulative effect of a change in accounting principle, net of income tax..... (4,903) -- --
----------- ----------- -----------
Net earnings................................................................. $ 11,205 $ 6,258 $ 5,025
----------- ----------- -----------
Basic earnings per common share..............................................
Before extraordinary item and cumulative effect of a change in
accounting principle......................................................$ 1.34 $ .55 $ .42
Extraordinary loss........................................................ -- (.03) --
Cumulative effect of a change in accounting principle..................... (.41) -- --
----------- ------------ ------------
Net earnings..............................................................$ .93 $ .52 $ .42
----------- ------------ ------------
Diluted earnings per common share............................................
Before extraordinary item and cumulative effect of a change in
accounting principle......................................................$ 1.33 $ .55 $ .41
Extraordinary loss........................................................ -- (.03) --
Cumulative effect of a change in accounting principle..................... (.41) -- --
------------ ------------ ------------
Net earnings..............................................................$ .92 $ .52 $ .41
------------ ------------ ------------
Average common shares outstanding............................................ 12,049 12,007 12,011
---------- ------------ ------------
Average common and common equivalent shares outstanding...................... 12,148 12,009 12,130
---------- ------------ ------------
Dividends per common share...................................................$ .14 $ .14 $ .14
---------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings............................................................ $ 11,205 $ 6,258 $ 5,025
Reconciliation of net earnings to cash provided by operating activities
Non-cash gain on litigation settlement................................ (8,518) -- --
Cumulative effect of a change in accounting principle................. 4,903 -- --
Gain on sale of marketable securities................................. (1,765) -- (612)
Extraordinary item.................................................... -- 299 --
Depreciation and amortization......................................... 27,787 24,384 18,209
Deferred income taxes................................................. 4,536 1,824 863
Provision for doubtful accounts....................................... 725 317 331
Minority interests in subsidiaries.................................... 3,502 2,519 3,699
Changes in assets and liabilities, net of effects of acquisitions
Accounts receivable................................................. (12,748) 4,447 (7,097)
Inventories and other current assets................................ (1,655) 1,451 (422)
Accounts payable and other current liabilities...................... 17,043 (1,285) 1,866
Non-current assets and liabilities.................................. (6,385) (3,820) 1,468
----------- ------------ -----------
Net cash provided by operating activities........................... 38,630 36,394 23,330
----------- ------------ -----------
Cash flows from investing activities
Acquisition of energy facilities........................................ (5,822) (67,901) --
Capital expenditures.................................................... (93,646) (42,910) (39,415)
Purchase of a fuel management agreement and related inventory........... -- -- (8,871)
Proceeds on sale of property, plant and equipment....................... 32 737 3,000
Investment in non-consolidated partnerships............................. (310) (6,417) (12,294)
Purchase of marketable securities....................................... (1,013) -- (4,139)
Sale of marketable securities........................................... 2,778 -- 4,751
----------- ------------ -----------
Net cash used in investing activities............................... (97,981) (116,491) (56,968)
----------- ------------ -----------
Cash flows from financing activities
Short-term debt, net.................................................... -- 800 (4,300)
Proceeds from long-term debt............................................ 87,234 122,510 77,253
Payments of long-term debt.............................................. (22,163) (37,576) (46,379)
Dividends paid.......................................................... (1,731) (1,722) (1,682)
Issuance of common stock, net........................................... 1,322 (561) 1,309
Distribution to minority interests...................................... -- (2,350) (4,146)
----------- ------------ -----------
Net cash provided by financing activities........................... 64,662 81,101 22,055
----------- ------------ -----------
Cash and cash equivalents
Increase/(decrease)..................................................... 5,311 1,004 (11,583)
At beginning of period.................................................. 14,697 13,693 25,276
----------- ------------ -----------
At end of period........................................................ $ 20,008 $ 14,697 $ 13,693
----------- ------------ -----------
Current................................................................. $ 15,380 $ 10,074 $ 8,967
Non-current............................................................. 4,628 4,623 4,726
----------- ------------ -----------
At end of period........................................................ $ 20,008 $ 14,697 $ 13,693
----------- ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNEARNED
ADDITIONAL COMPENSATION CUMULATIVE
COMMON STOCK PAID-IN RETAINED RESTRICTED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 12,010,597 $ 120 $ 112,836 $ 28,538 $ -- $ 136
Issuance of common stock 59,565 1 1,321 -- -- --
Repurchase of common stock -- -- -- -- -- --
Dividends -- -- -- (1,682) -- --
Comprehensive income:
Net earnings -- -- -- 5,025 -- --
Cumulative translation adj -- -- -- -- -- 160
Total comprehensive income -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 12,070,162 121 114,157 31,881 -- 296
Issuance of common stock 347,772 3 6,409 -- (5,707) --
Repurchase of common stock -- -- -- -- -- --
Dividends -- -- 29 (1,722) (29) --
Amortization of unearned compensation -- -- -- -- 769 --
Comprehensive income:
Net earnings -- -- -- 6,258 -- --
Cumulative translation adj -- -- -- -- -- (2,298)
Total comprehensive income -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 12,417,934 124 120,595 36,417 (4,967) (2,002)
Issuance of common stock 6,828 -- (219) -- (584) --
Repurchase of common stock -- -- -- -- -- --
Dividends -- -- -- (1,732) (11) --
Amortization of unearned compensation -- -- -- -- 461 --
Comprehensive income:
Net earnings -- -- -- 11,205 -- --
Cumulative translation adj -- -- -- -- -- 839
Total comprehensive income -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 12,424,762 $ 124 $ 120,376 $ 45,890 $ (5,101) $ (1,163)
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK
SHARES AMOUNT TOTAL
<S> <C> <C> <C>
Balance, December 31, 1996 $ 46,140 $ (960) $ 140,670
Issuance of common stock (30,640) 637 1,959
Repurchase of common stock 30,000 (650) (650)
Dividends -- -- (1,682)
Comprehensive income:
Net earnings -- --
Cumulative translation adj -- --
Total comprehensive income -- -- 5,185
--------- ---------- ----------
Balance, December 31, 1997 45,500 (973) 145,482
Issuance of common stock (29,647) 476 1,181
Repurchase of common stock 129,989 (1,742) (1,742)
Dividends -- -- (1,722)
Amortization of unearned compensation -- -- 769
Comprehensive income:
Net earnings -- -- --
Cumulative translation adj -- -- --
Total comprehensive income -- -- 3,960
--------- ---------- ----------
Balance, December 31, 1998 145,842 (2,239) 147,928
Issuance of common stock (150,964) 2,342 1,539
Repurchase of common stock 14,000 (217) (217)
Dividends 792 11 (1,732)
Amortization of unearned compensation -- -- 461
Comprehensive income:
Net earnings -- -- --
Cumulative translation adj -- -- --
Total comprehensive income -- -- 12,044
--------- ---------- ----------
Balance, December 31, 1999 $ 9,670 $ (103) $ 160,023
========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Trigen Energy Corporation (the "Parent Company", and together with its
subsidiaries, "We") develop, own and operate commercial and industrial energy
systems in the United States, Canada and Mexico. We use our expertise in thermal
engineering and proprietary cogeneration processes to convert fuel to various
forms of thermal energy and electricity. We combine heat and power generation,
producing electricity as a by-product, for use in our facilities and for sale to
customers.
Suez Lyonnaise Des Eaux, a French corporation, through its energy
services affiliate Elyo, a French corporation, owns 52.8% of our common stock.
We have entered into a licensing agreement with Elyo to provide us with
technical assistance to construct, operate and maintain community energy systems
within North America, as well as the right to use patents and licenses of Elyo
in connection with the generation and distribution of electricity, chilled water
and waste incineration.
Subsequent to year end, we have entered into an agreement with Elyo in
which Elyo will purchase all of the outstanding shares that it does not already
own (See Note 22 of Notes to Consolidated Financial Statements).
We have established joint ventures with electric utilities to develop
and operate combined heat and power plants. Our equity share in the operating
results of these joint ventures is reported in equity in earnings/(losses) of
non-consolidated partnerships in the Consolidated Statements of Operations.
A significant portion of our revenues and operating profit are subject
to seasonal fluctuation due to peak heating demand in the winter and peak
cooling demand in the summer.
2. SUMMARY OF ACCOUNTING POLICIES
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In July 1999, SFAS No. 137 was issued, which deferred the effective date of SFAS
No. 133. We will adopt SFAS No. 133 effective January 1, 2001. Based on
preliminary analyses, we do not expect that the future adoption of SFAS No. 133
will have a material effect on results of operations and financial condition.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires costs of start-up activities and
organizational costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. We
adopted SOP 98-5 effective January 1, 1999. The effect of the adoption was an
after-tax charge of $4.9 million net of a tax benefit of $3.5 million, to
expense deferred organizational and start-up costs as a cumulative effect of a
change in an accounting principle.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Parent Company and all wholly-and majority-owned subsidiaries. Intercompany
accounts and transactions are eliminated.
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1999 presentation.
F-8
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue for energy sold includes both fixed charges and amounts based
on energy delivered. Contract rates are either directly negotiated with the
customer or approved by the applicable regulatory authority. Sales not billed by
month-end are accrued based upon estimated usage. Fees earned are recognized as
services are performed.
There is one customer whose revenues were more than 10% of total
revenues in 1999. Revenues for the one customer were 11%, 12% and 13% of total
revenues in 1999, 1998 and 1997, respectively. Another customer accounted for
11% and 13% of total revenues in 1998 and 1997, respectively. The one customer
accounted for 6.9% of the total trade receivable balance at December 31, 1999.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits and temporary
investments in high-grade instruments with original maturities at date of
purchase of three months or less.
FUEL EXPENSE AND DEFERRED FUEL
Certain of our subsidiaries, either as a result of regulation or
contractual agreements with their customers, are allowed to recover all or
substantially all of their fuel costs, which is our largest expense. Certain of
these subsidiaries estimate the future cost of fuel in current contract rates.
Differences between the estimated fuel costs and actual fuel costs are deferred
and subsequently charged to or rebated to the customer through future rate
adjustments.
INVENTORIES
Inventories are comprised principally of fuel, operating supplies and
spare parts. Fuel inventories are stated at cost determined on a first-in,
first-out basis and materials and supplies and spare parts are stated at average
cost. The portion of spare parts inventories not expected to be used within one
year is classified as non-current.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
computed by the straight-line method over the estimated useful lives commencing
when assets, or major components thereof, are placed in service. Renewals or
betterments are capitalized, while maintenance and repair costs are expensed.
DEFERRED COSTS AND OTHER ASSETS
Included in deferred costs and other assets are capitalized costs
associated with debt financing, deferred contract costs, development projects
and other non-current assets. Financing costs are capitalized and amortized over
the debt term using methods that approximate the interest method. Deferred
contract costs are costs incurred to complete certain energy contracts. These
costs are deferred and amortized over the contract period. Costs incurred in
developing energy generation facilities after the execution of a letter of
intent are accumulated by project and included in the acquisition cost or as
construction in process for that project.
F-9
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTANGIBLE ASSETS
Included in intangible assets are costs in excess of the net assets of
acquired companies, non-compete agreements with former majority owners of
acquired companies, a fuel management contract and organization costs. The costs
in excess of the net assets of acquired companies is being amortized over
periods not exceeding 32 years. The non-compete and fuel management agreements
are being amortized over the terms of the agreements, 15 and 19 years,
respectively. We continuously assess the recoverability of these intangible
assets by evaluating whether the amortization of the intangible assets over the
remaining lives can be recovered through expected future results. Expected
future results are based on projected undiscounted operating results before the
effects of intangible amortization. The amount of impairment, if any, is
measured based on projected discounted future results, using a discount rate
reflecting our average cost of funds.
FOREIGN CURRENCY TRANSLATION
Income and expenses of Canadian subsidiaries are translated to U. S.
dollars at rates in effect during the year, and assets and liabilities at
year-end rates. Translation adjustments are included in stockholders' equity in
the Consolidated Balance Sheet. Foreign currency transaction gains and losses
are included in net earnings.
FINANCIAL INSTRUMENTS
We use financial instruments to limit the financial risk of increases
in interest rates on its floating rate debt. The differential to be paid or
received under financial instruments is accrued and recognized in interest
expense as interest rates change.
INCOME TAXES
We use the asset and liability method of accounting for income taxes
following the provisions of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
ENVIRONMENTAL EXPENDITURES
Expenditures that relate to an existing condition, which do not
contribute to current or future revenue generation and expenditures incurred for
environmental compliance with respect to pollution prevention and ongoing
monitoring programs, are expensed as incurred. Expenditures that increase the
value of the property are capitalized.
EARNINGS PER COMMON SHARE
Following is a reconciliation of basic earnings per common share to
diluted earnings per common share for the three years ended December 31, 1999
(in thousands, except per share data).
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
BASIC DILUTED BASIC DILUTED BASIC DILUTED
<S> <C> <C> <C> <C> <C> <C>
Earnings before extraordinary item and cumulative
effect of a change in accounting principle........................$16,108 $16,108 $ 6,557 $ 6,557 $ 5,025 $ 5,025
------- ------- ------- ------- ------- -------
Average equivalent shares
Common shares outstanding........................................12,049 12,049 12,007 12,007 12,011 12,011
Stock options and restricted stock .............................. -- 99 -- 2 -- 119
------- ------- ------- ------- ------- -------
Average equivalent shares .......................................12,049 12,148 12,007 12,009 12,011 12,130
Earnings per common share...................................$ 1.34 $ 1.33 $ .55 $ .55 $ .42 $ .41
======= ======= ======= ======= ======= =======
</TABLE>
Certain stock options are not considered in the above computations due to
the fact that they would be anti-dilutive.
F-10
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUPPLEMENTARY INCOME INFORMATION
Included in other income, net for the year ended December 31, 1999, is
a pre-tax gain of $14.5 million related to the Grays Ferry Cogeneration
Partnership litigation settlement agreement. The gain represents the market
value of the share of the Partnership that we received as part of this
settlement. (See Note 23 of Notes to Consolidated Financial Statements, Legal
Proceedings). In addition, included in other income, net for the year ended
December 31, 1999, is a pre-tax gain of $1.8 million associated with the sale of
marketable securities. Included in other income, net for the year ended December
31, 1998, were pre-tax gains of $2.1 million from the sale of nitrogen oxide
emission allowances and $1.7 million from an insurance settlement.
4. CUMULATIVE EFFECT OF A CHANGE IN AN ACCOUNTING PRINCIPLE
Effective January 1, 1999, we adopted the American Institute of
Certified Public Accountants Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that costs
associated with start-up activities and organizational costs be expensed as
incurred. The effect of the adoption was an after-tax charge of $4.9 million,
net of a tax benefit of $3.5 million, to expense deferred organizational and
start-up costs as a cumulative effect of a change in an accounting principle.
5. EXTRAORDINARY ITEM
We incurred extraordinary charges of $.3 million during 1998, net of a
tax benefit of $.2 million, in connection with the early retirement of debt.
6. ACQUISITIONS
On January 22, 1998, we acquired all of the capital stock of Power
Sources, Inc. (renamed Trigen-BioPower, Inc.), a biomass-to-energy power plant
developer and operator, for a total cash investment of $44.1 million, funded
from our existing credit facility. Results for Trigen-BioPower have been
consolidated with our results since the date of acquisition.
The acquisition was accounted for under the purchase method of
accounting. The purchase price has been allocated to the assets acquired and
liabilities assumed based on fair market value at the date of acquisition. The
excess of the purchase price over the net assets was $10.4 million and is being
amortized over a period of 30 years. The fair value of the assets acquired and
liabilities assumed is as follows (in thousands):
<TABLE>
<S> <C>
Current assets............................................... $ 3,325
Property, plant equipment.................................... 32,265
Intangibles.................................................. 11,687
Costs in excess of net assets acquired....................... 10,398
Current liabilities.......................................... (2,147)
Long-term debt............................................... (4,290)
Other liabilities............................................ (7,138)
-------
Total purchase price..................................... $44,100
=======
</TABLE>
The following unaudited pro forma summary presents the consolidated
results of operations for the year ended December 31, 1998 as if the acquisition
had occurred at the beginning of the year presented (in thousands, except per
share data):
<TABLE>
<CAPTION>
1998
----
<S> <C>
Revenues............................................... $243,531
Earnings before extraordinary item..................... 6,627
Diluted earnings per common share -
Before extraordinary item............................ $ .55
</TABLE>
F-11
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The pro forma results included certain adjustments for depreciation
expense as a result of a step up in the basis of property, plant and equipment
and an increase in the remaining useful lives, amortization expense as a result
of goodwill and other intangible assets and interest expense on borrowings to
finance the acquisition. The pro forma results do not purport to be indicative
of the results of operations which actually would have resulted had the
acquisition been made at the beginning of the year presented, or of results
which may occur in the future.
On September 23, 1998, we purchased an additional 48% interest in the
Trigen-Nations Energy Company Limited Partnership from Nations Energy
Corporation for $21.3 million. This limited partnership owns the energy
production assets in service to Coors Brewing Company in Golden, Colorado. On
June 22, 1999, we purchased an additional 1% of the limited partnership for $.3
million. The combined excess of purchase price over the net assets purchased was
$9.6 million and is being amortized over a period not exceeding 32 years. These
purchases increased our investment in Trigen-Nations Energy Company from 51% to
100%.
7. RESTRICTED FUNDS
Under the terms of our debt agreements, a portion of the cash of the
operating subsidiaries is restricted in use, first to paying the operating costs
of the respective subsidiary, then its debt service obligations, in the priority
stipulated in the respective debt agreements. Restricted funds at December 31,
1999 and 1998 were (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Restricted........................................................ $ 8,926 $4,628 $ 8,699 $ 4,623
Unrestricted...................................................... 6,454 -- 1,375 --
-------- ------ ------- -------
Cash and cash equivalents......................................... $15,380 $4,628 $10,074 $ 4,623
======= ====== ======= =======
</TABLE>
Under the terms of the debt agreements, payments from subsidiaries to
affiliated companies, including the Parent Company, are permitted, provided no
default exists or would be created by the payment and either (a) the payment is
to reimburse the Parent Company for management costs as permitted by the
respective debt agreement or (b) the subsidiary meets financial tests, which may
include debt coverage, working capital or equity tests, as specified in the
respective agreement.
8. INVENTORIES
Inventories at December 31, 1999 and 1998 were (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Fuel.............................................. $3,079 $2,200
Operating supplies and spare parts................ 5,720 4,874
------ ------
Total......................................... $8,799 $7,074
====== ======
</TABLE>
At December 31, 1999, we had purchase commitments for fuel at prices
discounted from the spot market and at fixed prices. The aggregate commitment
under these contracts is estimated to be $14.2 million based on current spot
prices. These contracts expire at varying dates from March 2000 through December
2000. We have fuel cost pass-through clauses in our rates with customers for all
of these commitments.
F-12
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 was (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS) 1999 1998
------------- ---- ----
<S> <C> <C> <C>
Land...................................................... -- $ 10,284 $ 10,418
Plant, machinery and equipment............................ 15-35 489,995 454,854
Buildings................................................. 40 45,440 41,556
Furniture, fixtures and leasehold improvements............ 3-5 10,624 9,225
Construction in process................................... -- 73,969 22,147
-------- --------
630,312 538,200
Less: Accumulated depreciation............................ (114,472) (95,445)
-------- --------
$515,840 $442,755
-------- --------
</TABLE>
Substantially all of our assets are pledged as collateral under our
debt agreements (See Note 13 of Notes to Consolidated Financial Statements). In
1999, we recognized an asset impairment loss of $3.0 million ($1.8 million net
of tax) in accordance with SFAS 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". This loss is the difference
between the carrying value of the long-lived assets of a division of our
Canadian subsidiary and the fair value of those assets based on discounted
estimated future cash flows. The loss is included in depreciation expense.
10. INTANGIBLE ASSETS
Intangible assets at December 31, 1999 and 1998 were (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Costs in excess of net assets acquired....................... $25,625 $ 25,545
Non-compete agreements....................................... 21,667 21,667
Fuel management agreement.................................... 8,500 8,500
Other ....................................................... 47 3,333
------- --------
55,839 59,045
Less: Accumulated amortization............................... (9,776) (9,077)
------- --------
$46,063 $49,968
------- --------
</TABLE>
Amortization expense for the years ended December 31, 1999, 1998 and
1997 was $2.7 million, $2.9 million, and $1.7 million, respectively.
11. DEFERRED COSTS AND OTHER ASSETS
Deferred costs and other assets at December 31, 1999 and 1998 were (in
thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred financing costs.............................. $18,503 $17,890
Less: Accumulated amortization........................ (11,152) (9,434)
------- ---------
7,351 8,456
Deferred contract costs............................... 10,543 2,556
Project development costs............................. 2,782 6,443
Non-current receivables............................... 5,113 4,619
Non-current inventories............................... 2,077 2,162
Other................................................. 169 169
------- ----------
$28,035 $24,405
------- ----------
</TABLE>
F-13
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amortization expense for the years ended December 31, 1999, 1998 and
1997 was $2.2 million, $1.6 million and $1.8 million, respectively.
12. SHORT-TERM DEBT
United Thermal Corporation, a wholly-owned subsidiary of the Parent
Company, together with its affiliated companies ("UTC"), have a $15 million
revolving credit facility available (the "UTC Revolver") through June 30, 2000,
and, upon approval of the lender, for additional one year periods thereafter.
The UTC Revolver is secured pro rata with the UTC Term Loan (See Note 13 of the
Notes to Consolidated Financial Statements). UTC is required to have 60
consecutive days each year with no outstanding borrowings under the UTC
Revolver. UTC has several interest rate options under the UTC Revolver including
LIBOR. The balance outstanding under this facility at December 31, 1999 and 1998
was $15 million, and the average rate on this borrowing was 6.4% in 1999 and
6.5% in 1998. The effective rate at December 31, 1999 was 7.3%.
13. LONG-TERM DEBT
Long-term debt outstanding at December 31, 1999 and 1998 was (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
1997 credit facility (a)................................ $193,000 $128,000
UTC term loan (b)....................................... 41,641 50,441
Nassau term loan (c).................................... 37,221 41,664
Nassau bonds (c)........................................ 14,350 14,350
Trenton bonds (d)....................................... 33,175 34,625
Oklahoma term loan (e).................................. 14,929 16,311
Oklahoma bonds (e)...................................... 4,920 4,920
Trigen Energy Canada term loan (f)...................... 18,549 18,272
Trigen-BioPower credit facility (g)..................... 4,344 1,500
Trigen-BioPower bonds (h)............................... 14,100 ---
Subordinated debt (i)................................... 50,000 50,000
--------- ---------
........................................................ 426,229 360,083
Less: Current portion included above.................... (19,474) (16,398)
--------- ---------
$406,755 $343,685
--------- ---------
</TABLE>
(a) On April 4, 1997, we entered into a $160.0 million revolving credit
agreement with several banks. This facility was used to repay indebtedness
outstanding under a $62.5 million credit facility entered into in 1995. The
$160.0 million facility is for an initial period of three years and may be
extended by a total of two one-year periods. Borrowings under the facility
bear interest, at our option, at an annual rate equal to the base rate or
the LIBOR rate plus3/4%. The base rate is the higher of the prime lending
rate or the Federal Reserve reported Federal funds rate plus1/2%. On June
10, 1997, we amended the $160.0 million credit agreement by reducing the
facility to $125.0 million and entered into a $35.0 million revolving
credit facility with the same group of banks. The new facility is for an
initial 364-day period and may be extended annually at the option of the
banks. The terms and conditions of both facilities are the same. On
September 23, 1998, the $125.0 million three year facility was increased by
$35.75 million and the initial period was increased by one year. The base
rate is the higher of the prime lending rate or the Federal Reserve
reported Federal funds rate. The average effective rate on the facility was
6.0% in 1999 and the rate at December 31, 1999 was 7.2%.
(b) The UTC term loan and the UTC Revolver (Note 12) (together the "UTC Debt")
are secured by all the assets and revenues of UTC. The Parent Company has
guaranteed the UTC Debt in an amount which is limited, except for
liabilities of UTC arising from environmental matters, to the lesser of
$31.7 million and one-third of the UTC Debt commitments.
F-14
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest on the UTC term loan is at variable rates based on LIBOR. The
average effective rate was 7.3% in 1999, 7.8% in 1998 and 7.3% in 1997. The
rate at December 31, 1999 was 8.1%. UTC has purchased interest rate
protection agreements (See Note 14 of Notes to Consolidated Financial
Statements). Principal repayments commenced in June 1994, with final
maturity in September 2004.
(c) Interest on the Nassau term loan is at variable rates based on LIBOR. The
average effective rate was 6.4% in 1999, 6.8% in 1998 and 6.7% in 1997. At
December 31, 1999, the effective rate was 7.2%. Principal repayments
commenced in June 1992, with final maturity in December 2003.
The Nassau bonds were issued by the Town of Hempstead Industrial
Development Authority. In February 1998, the Nassau bonds were refinanced
as variable rate demand tax-exempt industrial development bonds. A bank has
issued a letter of credit in favor of the bondholders in the event of
default. Interest is variable, and the average effective rate was 3.2% in
1999.
The Nassau term loan and the Nassau bonds are without recourse to the
Parent Company. All the assets and revenues of Trigen-Nassau Energy
Corporation ("Trigen-Nassau"), a wholly owned subsidiary of the Parent
Company are pledged to secure the term loan and bonds. Upon certain events,
Trigen-Nassau will be required to enter into interest rate protection
agreements the effect of which is to fix the rate on 50% of the aggregate
outstanding principal amounts of the term loan and bonds for a minimum of
five years.
(d) The Trenton bonds were issued by the New Jersey Economic Development
Authority, and are payable solely from revenues and other funds pledged by
Trigen-Trenton Energy Company, L.P., a majority-owned subsidiary of the
Parent Company. The bonds require annual sinking fund payments that began
December 1993 with final maturity in December 2010. The interest rates were
fixed to maturity at 6.1%-6.2% on $34.6 million of the bonds (the
tax-exempt portion).
(e) Interest on the Oklahoma term loan is at variable rates based on LIBOR. The
average effective rate was 6.6% in 1999, 7.0% in 1998 and 7.1% in 1997. The
rate at December 31, 1999, was 7.0%. Principal repayments commenced in
December 1994, with final maturity in September 2007.
The Oklahoma bonds were issued by the Oklahoma City Industrial and Cultural
Facilities Trust. Interest is 6.75% per year. Principal payments are due
from 2008 through 2017. A bank has issued a letter of credit in favor of
the bondholders in the event of default.
The Oklahoma term loan and the Oklahoma bonds are without recourse to the
Parent Company. All the assets of Trigen-Oklahoma Energy Corporation
("Trigen-Oklahoma"), a wholly owned subsidiary of the Parent Company, are
pledged to secure the term loan and bonds. Upon certain events,
Trigen-Oklahoma will be required to enter into interest rate protection
agreements the effect of which is to fix the rate on 75% of the aggregate
outstanding principal amounts of the term loan and bonds for an average
life of seven years.
(f) Interest on the term loan for Trigen Energy Canada Inc., a wholly owned
subsidiary of the Parent Company, ("Trigen-Canada") was at variable rates
during 1999 based on Canadian bankers' acceptances. The average effective
rate was 6.3% in 1999, 5.39% in 1998 and 4.6% in 1997. At December 31,
1997, Trigen-Canada entered into an interest rate swap agreement fixing the
rate on the outstanding principal amount (See Note 14 of Notes to
Consolidated Financial Statements). The rate at December 31, 1999 was 5.3%.
The term loan is secured by the assets of Trigen-Canada, with limited
recourse to the Parent Company in the event of any shortfall in debt
service payments by Trigen-Canada.
(g) Trigen-BioPower ("BioPower") secured revolving credit facility is without
recourse to the Parent Company. All the assets of BioPower, a wholly owned
subsidiary of the Parent Company are pledged to secure the loan. The
facility requires BioPower to meet certain financial tests and contains
restrictions. The average effective rate was 7.63% for 1999 and 7.03% for
1998. The effective rate at December 31, 1999 was 8.13% and 7.03% in 1998.
F-15
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(h) Trigen-BioPower bonds were issued by the Development Authority of St.
Mary's (Georgia) as variable rate demand tax-exempt pollution control
revenue bonds. A bank has issued a letter of credit in favor of the
bondholders in the event of default. Interest is variable, and the average
effective rate was 3.68%. The Parent Company has guaranteed this debt.
(i) On December 30, 1998, we borrowed from an affiliate, Cofreth American
Corporation, $50.0 million for acquisitions and project development. The
$50.0 million was initially used to partially pay down the Corporate
facility. The $50.0 million is subordinate and junior in right of payment
to all other debt. The subordinated debt may be redeemed in whole or in
part at the option of Cofreth American Corporation with the net proceeds of
an equity sale by the Company. The debt matures on December 31, 2010 and
the interest rate is 7.38%.
Our debt agreements limit or restrict cash payments, the payment of
dividends, capital expenditures, incurrence of new debt and transactions with
affiliates. At December 31, 1999, we were in compliance with all covenants
contained in our debt agreements (See Note 23 of Notes to Consolidated Financial
Statements for default information related to Grays Ferry Cogeneration
Partnership).
Maturities of long-term debt for the next five years are as follows (in
thousands):
<TABLE>
<S> <C>
2000..................................................... $ 19,474
2001..................................................... 215,742
2002..................................................... 19,289
2003..................................................... 37,319
2004..................................................... 12,734
</TABLE>
Based upon the debt balances at December 31, 1999, a change in the
LIBOR rate of .25% would have a corresponding change in interest expense of
approximately $.8 million per year when three-month LIBOR is under 6.0% ranging
to approximately $.7 million per year when three-month LIBOR is over 7.5%.
Three-month LIBOR at December 31, 1999 was 6.00125%.
Cash paid for interest was $23.8 million, $21.0 million and $17.3
million in 1999, 1998 and 1997, respectively.
14. FINANCIAL INSTRUMENTS
The estimated fair value of long term debt approximates carrying value
at December 31, 1999. The fair value of receivables, payables and short-term
debt approximates carrying value at December 31, 1999 due to the short-term
maturity of these instruments.
As of December 31, 1999, we had outstanding interest rate swap, cap and
collar agreements related to $39.4 million of debt outstanding, with an average
fixed interest rate of 6.2% and an average remaining life of 5 years. The fair
value of the swap, cap and collar agreements was a receivable of $1.5 million.
In addition to the letters of credit issued with respect to the Nassau,
BioPower and Oklahoma bonds (See Note 13 of Notes to Consolidated Financial
Statements), we had outstanding a contingent liability for letters of credit of
$7.9 million at December 31, 1999.
15. LEASES
We have entered into various leasing arrangements for office space,
land and equipment. These arrangements are accounted for as operating leases.
F-16
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum rental payments under operating leases with remaining
non-cancelable terms in excess of one year at December 31, 1999 are (in
thousands):
<TABLE>
<S> <C>
2000................................................ $ 3,289
2001................................................ 3,007
2002................................................ 2,568
2003................................................ 2,399
2004................................................ 1,905
Thereafter.......................................... 14,670
-------
Total minimum payments.............................. $27,838
=======
</TABLE>
Excluded from the above future minimum rental payments are two
operating leases, one for a term of 25 years and the other for 99 years. The
25-year lease is for land, facilities and equipment and the 99-year lease is for
land. The current annual rental payments for these leases are $1.0 million and
the total remaining commitments at December 31, 1999 are estimated to be $27.5
million.
Rental expense was $4.4 million in 1999, $4.2 million in 1998 and $3.7
million in 1997.
16. STOCK OPTIONS
Our stock incentive plan provides for the granting of stock options,
stock appreciation rights, performance shares, restricted stock and other stock
awards to officers and key employees and stock options to non-employee
directors. In 1997, shareholders approved an increase in the number of shares of
common stock that may be issued under the stock incentive plan to 2,000,000
shares.
Stock options outstanding under the stock incentive plan were granted
at a price equal to 100% of the market price on the date of grant. Stock options
granted to non-employee directors are exercisable six months from the date of
grant, and are exercisable until the earlier of the tenth anniversary of the
date of grant, or the first anniversary of leaving the Board of Directors. Stock
options granted to employees vest at the rate of 20% per year, starting on the
first anniversary of the grant date and are exercisable over a period of ten
years from the date of grant, with the exception of grants of stock options in
1995 for 18,800 shares, which vested immediately.
During 1998, we reviewed the stock option program and approved an
option exchange program covering 291,100 outstanding stock options which were
granted under the 1997 stock-based compensation program with stock exercise
prices greater than $14.00 per share. This exchange program provided that all
eligible management had the right to exchange existing options with strike
prices greater than $14.00 for new options with a strike price of $14.00.
Information relating to stock options granted during 1999, 1998 and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding December 31, 1996......................... 564,060 $17.05
Granted............................................ 371,500 21.37
Exercised.......................................... (24,740) 17.08
Canceled........................................... (43,290) 18.34
-------
Balance December 31, 1997............................. 867,530 18.83
Granted............................................ 38,100 13.84
Exercised.......................................... (730) 15.75
Canceled........................................... (95,990) 19.05
--------
Balance December 31, 1998............................. 808,910 18.57
Granted............................................ 105,600 16.30
Exercised.......................................... (4,200) 13.58
Canceled........................................... (70,100) 18.94
-------
Balance December 31, 1999............................. 840,210 18.11
-------
</TABLE>
F-17
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes information about stock options outstanding at December
31, 1999.
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------- -----------
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE PRICES OPTIONS LIFE(a) EXERCISE PRICE OPTIONS EXERCISE PRICE
--------------- ------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$10.63 - $19.75 770,210 8.4 $15.98 474,550 $15.50
19.94 - 24.00 52,500 7.4 21.66 35,000 21.43
24.38 - 27.75 17,500 8.0 25.43 7,000 26.18
------- --- ------ ------- ------
Total 840,210 8.1 $18.11 516,550 $16.05
------- --- ------ ------- ------
</TABLE>
- ---------
(a) Average contractual life remaining in years.
We apply APB 25 in accounting for our stock option plan. Accordingly,
compensation expense would be recorded on the date of grant only if the current
market price of our common stock exceeded the exercise price. Had compensation
expense for the stock option plan been determined based on the fair value at the
grant dates for awards under the plan consistent with SFAS No. 123, net earnings
would have decreased by $.6 million ($.05 per common share) and $.6 million
($.05 per common share) in 1999 and 1998, respectively.
The fair value of each option was estimated on the date of grant using
the Black Scholes option-pricing model with the following assumptions: risk free
interest rates of 5.7 % and 5.3% for 1999 and 1998, respectively; annual
dividend yields of 1.22% for 1999 and 1998; expected option life of 8.1 years
for 1999 and 8 years for 1998; and volatility of 41% and 37% for 1999 and 1998,
respectively. The weighted average fair value of an option granted during 1999
and 1998 was $8.15 and $6.33 per share, respectively.
Pursuant to the terms of the Merger Agreement (See Note 22 of Notes to
Consolidated Financial Statements) all options to acquire Trigen's stock will be
cancelled. Each holder of an option will receive an amount in cash equal to the
excess, if any, of the merger consideration over the per share exercise price of
such option without interest.
In connection with the employee stock purchase plan, we allocated
200,000 shares of common stock for purchases pursuant to such plan. On September
9, 1999, we amended the 1994 Stock Purchase Plan to increase the number of
shares of stock available thereunder from 200,000 to 400,000. The amendment is
subject to approval by our stockholders. Stock purchased in 1999, 1998 and 1997
pursuant to the employee stock purchase plan was 63,367, 46,050 and 32,028
shares, respectively. The acquisition price of the stock is 85% of the lower of
the closing market price on the first and last day of the six-month purchase
period.
RESTRICTED STOCK
We launched a long-term restricted stock-based compensation program in
1997. The program's primary objective is to focus management on increasing
shareholder value. The program has two components: (a) stock ownership goals;
and (b) a restricted share award. The restricted shares, which have a life cycle
of eight years, will remain restricted until we announce accumulated basic
Earnings per Share over four consecutive fiscal quarters of $2.08. This earnings
target represents a doubling of our 1996 Earnings per Share figure. In addition
to the earnings target, the shares are also restricted from vesting unless the
participant achieves his/her prescribed stock ownership levels. Each participant
has been provided with a stock ownership target. The stock ownership targets are
stated as a percentage of the participant's restricted share award and the
percentages are progressive based on the increase in role and responsibility.
During 1999, we granted 32,400 restricted shares to certain employees.
Deferred compensation based on the market price of the stock on the date of the
grants totaling $.7 million was recorded in 1999. 5,525 restricted shares were
canceled in 1999 due to employees leaving the Company, resulting in a reduction
in unearned compensation of $.1 million. We are amortizing unearned compensation
into earnings over the vesting period of eight years.
Pursuant to the terms of the Merger Agreement (See Note 22 of Notes to
Consolidated Financial Statements), these shares of restricted stock will be
cancelled and each holder will, promptly after the effective time of the merger,
receive, for each share of restricted stock, an amount of cash equal to
one-fourth of the merger consideration.
F-18
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. RETIREMENT PLANS
We sponsor a 401(k) Plan which allows participants to make
contributions pursuant to Section 401(k) of the Internal Revenue Code. We match
employee contributions in varying percentages according to a schedule up to an
annual maximum employer contribution of approximately $1,290 per employee.
Employees vest immediately in both employee and employer contributions. Employer
contributions to the 401(k) Plan were $1.1 million (including the cost of 47,646
shares of our common stock), $1.0 million (including the cost of 21,576 shares
of our common stock), and $1.1 million (including the cost of 23,902 shares of
our common stock) in 1999, 1998 and 1997, respectively. Effective January 1,
1995, the 401(k) Plan was open to all of our employees excluding certain
employees covered by other retirement plans.
Benefits payable under a defined benefit plan were frozen as of
December 31, 1994 pending vesting and distribution to participants. Benefits
under the plan are based primarily on salary during the term of employment and
length of service. Pension expense was $42,000, $39,000 and $316,000 in 1999,
1998 and 1997, respectively. Our net obligation under the plan at December 31,
1998 was not significant.
18. INCOME TAXES
The provision for income taxes was (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ----- ------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
State/Local $1,821 $ 803 $ 2,624 $1,147 $ 106 $1,253 $ 738 $ 45 $ 783
U.S. Federal & foreign 5,023 3,733 8,756 1,604 1,718 3,322 1,890 818 2,708
------ ------- ------ ------ ---- ------
Total $6,844 $4,536 $11,380 $2,751 $1,824 $4,575 $2,628 $863 $3,491
====== ====== ======= ====== ====== ====== ====== ==== ======
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
liabilities and assets at December 31, 1999 and 1998 are (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred income tax liabilities
Property, plant and equipment...................................... $53,062 $45,019
------- -------
Deferred income tax assets
AMT credit carryforwards........................................... 5,848 4,779
Tax loss carryforwards............................................. 2,344 1,202
Environmental costs................................................ 832 832
Revenue and receivable allowances.................................. 274 23
Other, net......................................................... 5,447 2,626
------- -------
Gross deferred income tax assets..................................... 14,745 9,462
Valuation allowances................................................. (526) (443)
------- -------
Net deferred income tax assets....................................... 14,219 9,019
------- -------
Net deferred income tax liability.................................... $38,843 $36,000
======= =======
</TABLE>
Net current deferred income tax assets of $5.5 million and $3.4 million
at December 31, 1999 and 1998, respectively, are included in prepaid expenses
and other current assets, net in the Consolidated Balance Sheet.
At December 31, 1999, a loss carryforward of $2.9 million was available
to offset Canadian taxable income expiring $.7 million in 2003, $.9 million in
2004, $.8 million in 2005 and $.6 million in 2006. At December 31, 1999, an
alternative minimum tax credit carryforward of $5.8 million was available to
offset future U.S. regular income taxes, if any, over an indefinite period.
Valuation allowances were primarily for tax loss carryforwards in state and
local jurisdictions that may expire before being used. We believe that it is
more likely than not that we will generate taxable income sufficient to realize
the loss carryforwards prior to their expiration. This belief is based upon
projected taxable income and available tax planning strategies.
F-19
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of tax at the U.S. statutory rate to the effective income tax
rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. statutory rate................................. 35.0% 35.0% 35.0%
State/local income taxes, net of Federal benefit........... 6.2 7.6 6.2
Taxes related to foreign operations........................ (1.8) (1.1) (1.3)
(Increase)/decrease in valuation allowances................ .3 .3 1.6
Other items, net........................................... 1.7 (.7) (.5)
----- ---- ----
Income taxes............................................... 41.4% 41.1% 41.0%
===== ==== ====
</TABLE>
We made income tax payments of $5.9 million, $2.2 million and $2.2
million in 1999, 1998 and 1997, respectively. Taxes on receipts or capital,
imposed by some jurisdictions in lieu of taxes on income are included in general
and administrative expenses. These taxes were $1.3 million, $.7 million and $.8
million in 1999, 1998 and 1997, respectively.
19. EQUITY INVESTMENT IN GRAYS FERRY COGENERATION PARTNERSHIP
As of December 31, 1999, we had an investment of $39.3 million in the
Grays Ferry Cogeneration Partnership (the "Partnership"), representing a
one-half interest in the Partnership through our wholly owned subsidiary
Trigen-Schuylkill Cogeneration, which is accounted for under the equity method.
Cogen America Schuylkill Inc. owns the other one-half interest in the
Partnership. We derive a significant portion of our income from the Partnership.
Included in our revenues for the year ended December 31, 1999 was our pre-tax
share of the Partnership earnings of $8.1 million and fees earned from the
Partnership of $3.1 million. The summarized financial information presented
below as of December 31, 1999 represents an aggregation of 100% of the
Partnership (in thousands).
<TABLE>
<CAPTION>
1999
----
<S> <C>
CONDENSED INCOME STATEMENT INFORMATION:
Revenues.................................................. $78,671
Gross profit.............................................. 29,632
Net income................................................ 16,647
CONDENSED BALANCE SHEET INFORMATION:
Current assets............................................ $28,328
Non-current assets........................................ 145,376
Current liabilities....................................... 106,320
Partners' Capital......................................... 67,384
</TABLE>
F-20
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER (a)
-------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999
Revenues........................................ $85,429 $60,886 $57,737 $76,368
Operating income................................ 16,885 7,628 5,996 9,042
Earnings (losses) before cumulative effect
of a change in accounting principle............ 6,129 9,350 (1,012) 1,641
Cumulative effect of a change in accounting
principle (b).................................. (4,903) -- -- --
Net earnings (losses)........................... 1,226 9,350 (1,012) 1,641
Basic earnings per common share
Before cumulative effect of a change in
accounting principle......................... .51 .78 (.09) .14
Cumulative effect of a change in
accounting principle......................... (.41) -- -- --
------- ------- ------- -------
Net earnings (losses)......................... .10 .78 (.09) .14
------- ------- ------- -------
Diluted earnings per common share
Before cumulative effect of a change in
accounting principle......................... .51 .78 (.09) .13
Cumulative effect of a change in
accounting principle......................... (.41) -- -- --
------- ------- ------- -------
Net earnings (losses)......................... .10 .78 (.09) .13
------- ------- ------- -------
1998
Revenues........................................ $74,912 $50,794 $50,839 $65,849
Operating income................................ 15,806 2,272 3,201 10,544
Earnings (losses) before extraordinary item..... 5,448 (13) (1,888) 3,010
Extraordinary loss (c).......................... (299) -- -- --
Net earnings (losses)........................... 5,149 (13) (1,888) 3,010
Basic earnings per common share
Before extraordinary item..................... .45 -- (.15) .25
Extraordinary loss............................ (.03) -- -- --
------- ------- ------- -------
Net earnings (losses)......................... .42 -- (.15) .25
------- ------- ------- -------
Diluted earnings per common share
Before extraordinary item..................... .45 -- (.15) .25
Extraordinary loss............................ (.03) -- -- --
------- ------- ------- -------
Net earnings (losses)......................... .42 -- (.15) .25
------- ------- ------- -------
1997
Revenues........................................ $83,521 $48,107 $43,024 $65,999
Operating income................................ 16,803 2,056 (505) 10,389
Net earnings (losses)........................... 7,087 (1,736) (3,796) 3,470
Basic earnings per common share................. .59 (.14) (.32) .29
Diluted earnings per common share............... .58 (.14) (.31) .28
----------- ------------ ----------- -----------
</TABLE>
- ----------
(a) As of January 1, 1998, we changed our accounting policy for interim
reporting for certain operating costs from an average costing method to an
actual costing method. We believe that use of an actual costing
methodology better reflects the results of our operations and conforms
internal and external reporting of such results. This change effects
interim quarterly reporting only and has no effect on an annual basis for
the years ended December 31, 1999, 1998 and 1997 or on any prior years.
The amounts presented above for 1998 and 1997 have been restated to
reflect this change in accounting policy.
(b) Reflects an after-tax charge of $4.9 million related to the adoption of
SOP 98-5 "Reporting on the costs of Start-Up Activities" which was
recorded as a cumulative effect of a change in accounting principle. See
Note 4 of Notes to Consolidated Financial Statements.
(c) Represents extraordinary losses of $.3 million, net of a $.2 million tax
benefit, incurred in 1998, in connection with the early retirement of
debt.
F-21
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. CONTINGENCIES
We are subject from time to time to legal proceedings and other claims
that arise in the normal course of business, and we believe, except as set forth
in Note 23 of Notes to Consolidated Financial Statements, that the outcome of
these matters will not have a material adverse effect on our results of
operations or financial condition.
22. SUBSEQUENT EVENT
On January 19, 2000, Trigen and Elyo, an energy subsidiary of the Suez
Lyonnaise des Eaux Group, jointly announced that they have entered into a
definitive merger agreement for Elyo to purchase all of the outstanding shares
of Trigen it does not already own for $23.50 a share in cash. Elyo's
subsidiaries currently own approximately 53% of Trigen common stock. On March
27, 2000, Elyo announced the completion of the tender offer. As of that date,
Elyo had beneficial ownership of aproximately 96% of Trigen's common stock.
23. LEGAL PROCEEDINGS
OKLAHOMA LITIGATION
In September 1996, our subsidiary, Trigen-Oklahoma City Energy
Corporation ("Trigen-Oklahoma City"), commenced an antitrust action in Federal
District Court in Oklahoma City seeking injunctions and actual, treble and
punitive damages from a local utility, Oklahoma Gas and Electric Company
("OG&E"), based on alleged anti-competitive actions against Trigen-Oklahoma City
Energy Corporation by OG&E. Trigen-Oklahoma City's antitrust action went to
trial in 1998 and on December 21, 1998, the jury returned a verdict in favor of
Trigen. On January 19, 1999, the Court entered a judgment in favor of Trigen in
the amount of $27.8 million. On January 25, 2000 the court decided post-trial
motions to vacate or modify the judgment reducing the judgment to $20.6 million.
OG&E has filed an appeal to the Tenth Circuit Court of Appeals and has posted a
bond in order to stay enforcement of the judgment pending appeal. Trigen has
filed a cross-appeal. Trigen's separate motion for attorney's fees (seeking
approximately $3 million) is pending but OG&E has requested that the court
postpone a hearing on that motion until the appeals are decided by the Circuit
Court. We have not recognized any gain with respect to this matter because we
cannot predict the final outcome.
KINETIC ENERGY LITIGATION
On May 2, 1997, a judgment was entered against us in the amount of $4.3
million following a jury trial in a law suit by Kinetic Energy Development
Corporation against Trigen in the Circuit Court of Jackson County, Missouri, in
connection with our acquisition of the Kansas City steam system. Kinetic claimed
for compensation alleged to be owed to it by Trigen in connection with that
acquisition. On August 6, 1997, the Court set aside the jury verdict and granted
judgment for Trigen. Kinetic Energy Development Corporation appealed that order
and on December 8, 1998, the Missouri Court of Appeals set aside the lower court
decision and ordered a new trial. On December 22, 1998, we filed a motion for
rehearing with the Missouri Court of Appeals and/or a review by the Missouri
Supreme Court. The Court of Appeals granted our motion for rehearing. On
September 7, 1999, the Court of Appeals held that Kinetic had proven only
nominal damages at trial and returned the case to Circuit Court for retrial. The
retrial will allow Kinetic to attempt to establish that it is entitled to some
award for the reasonable value of its services, if any, in connection with the
Trigen acquisition of the Kansas City steam system. The case presently awaits
rescheduling for trial. We believe we have good defenses to these claims.
Accordingly, we have not recognized any loss or expense (other than defense
costs) with respect to this matter, although we cannot predict the final
outcome.
F-22
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GRAYS FERRY LITIGATION
On April 23, 1999, the Pennsylvania Court of Common Pleas of
Philadelphia County approved a settlement agreement which ended the lawsuit
brought by Grays Ferry Cogeneration Partnership (the "Partnership"),
Trigen-Schuylkill Cogeneration, Inc. and CogenAmerica Schuylkill Inc. against
PECO Energy Company and Adwin (Schuylkill) Cogeneration, Inc. The Partnership is
the owner of the Grays Ferry Cogeneration Facility located in Philadelphia,
Pennsylvania. The Partnership, Trigen-Schuylkill and CogenAmerica commenced this
lawsuit in reaction to the alleged termination by PECO on March 3, 1998, of the
electric power purchase agreements between the Partnership and PECO (the "Power
Purchase Agreements").
Prior to the settlement, we owned a one-third interest in the
Partnership through our wholly owned subsidiary, Trigen-Schuylkill. CogenAmerica
and Adwin owned the other two-thirds interests in the Partnership. Adwin is an
indirect wholly owned subsidiary of PECO. Under the settlement agreement PECO's
subsidiary, Adwin, surrendered its rights to its one-third partnership interest
in the Partnership to the two remaining partners, Trigen-Schuylkill and
CogenAmerica. As a result, we own one half of the Partnership and CogenAmerica
owns the other half. During 1999, we recognized an after tax gain of $8.5
million ($.70 per diluted share) which represents the market value of our share
of Adwin's interest.
In the year 2001, the energy price under the Power Purchase Agreements
will be based upon a percentage of a market based index, which we expect to
produce substantially lower revenues from sales to PECO than the more favorable
rates of the early contract years. Under the Settlement the Partnership gained
the right to sell to third parties electric energy and capacity from the
facility in excess of the 150 megawatts which PECO is required to purchase under
the Power Purchase Agreements, subject to a right of first refusal for PECO. We
expect that the ability to sell to third parties electric energy and capacity
above the 150 megawatts under contract to PECO, will result in an opportunity to
improve the financial performance of the Partnership. The Partnership will now
have the ability to institute capital modifications to the combustion turbine to
increase electric capacity during the summer months when the price of electric
capacity and energy are historically the highest.
Separately, The Chase Manhattan Bank, as agent for several commercial
banks (collectively "Chase"), and Westinghouse Power Generation, which
collectively financed the construction of the Gray's Ferry Cogeneration
Facility, agreed to dismiss their lawsuits against PECO. Chase and Westinghouse
also agreed that they will not charge the Partnership for any default interest
up to April 16, 1999, although they have reserved the right to do so with
respect to the period after April 16, 1999.
The Partnership is in default under its separate credit agreements with
Westinghouse and Chase for the following reasons. The Partnership did not
convert on time its short-term construction loan from Chase to a longer term
loan. The Partnership could not complete that conversion because of a dispute
with the construction contractor, which has now been resolved. The Partnership
also did not make principal payments to Westinghouse because the Chase loan
agreement prohibits such payments to subordinate parties while the Partnership
is in default. Westinghouse is a subordinate party.
The Partnership owes a total principal amount of approximately $79.4
million to Chase. Chase has not accelerated the debt owing under the Credit
Agreement. Chase has required to date, and may require in the future, the
Partnership to apply available cash held by Partnership (net of operating
expenses) toward repayment of the principal amount of the loans outstanding to
Chase. The Partnership owes a total principal amount of approximately $15
million to Westinghouse. On March 1, 2000, Westinghouse demanded full payment of
the amount owing to Westinghouse under its credit agreement. Only the
Partnership assets and the Partners' ownership interests in the Partnership
secure the Partnership's debt under the Chase and Westinghouse loans.
To resolve these matters we have negotiated an amendment to the credit
agreement with Chase and we are negotiating with Westinghouse and other
subordinate parties. The Partnership has accrued $3.0 million in default
interest since April 16, 1999.
F-23
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NASSAU LITIGATION
On May 29, 1998, the County of Nassau, New York commenced an action
against Trigen Energy Corporation and Trigen-Nassau Energy Corporation in New
York State Supreme Court. Trigen-Nassau provides energy services to Nassau
County under various agreements. Nassau County alleges that Trigen-Nassau
breached those agreements by, among other means, charging the County for certain
real estate taxes that the County contends are Trigen-Nassau's responsibility.
On October 8, 1998, the Court dismissed the claims against Trigen Energy
Corporation. On November 9, 1998, Trigen-Nassau filed counterclaims against
Nassau County, seeking $1.6 million in damages. Trigen-Nassau alleges that
Nassau County breached the parties' agreements by, among other things, failing
to operate and maintain certain facilities and equipment. On January 21, 1999,
the County requested that the Court dismiss Trigen-Nassau's counterclaims. On
April 5, 1999, the Court dismissed some but not all of Trigen-Nassau's
counterclaims. The Court declined to dismiss Trigen-Nassau's counterclaims that
seek approximately $1.5 million in damages. The County is seeking approximately
$10 million in damages. We believe we have good defenses to the County's claims.
Accordingly, we have not recognized any loss or expense (other than defense
costs) with respect to this matter, although we cannot predict the final
outcome.
ESI LITIGATION
In 1996 ESI, Inc. commenced an action against, among others, Coastal
Power Company, Latin American Energy Development, Inc. and La Casa Castro S.A.
de N.V. in the United States District Court for the Southern District of New
York. On September 17, 1998, ESI, Inc. amended its complaint naming Trigen as an
additional defendant. This action arises out of the development by Trigen, Latin
American Energy, La Casa Castro and others, of an independent power project in
El Salvador between 1993 and 1994. Trigen transferred its interest in the
project to Tenneco Gas International in May 1994. In July 1994, Tenneco
transferred its interest in the project to Coastal Power Company, which
currently owns and operates the project. ESI claimed that ESI was entitled to a
2.5% interest in the project and that Coastal had wrongfully withheld or denied
ESI's interest. ESI further claimed that Trigen had failed to disclose ESI's
interest to Tenneco and so was responsible, in whole or in part, for ESI's
failure to receive a 2.5% interest in the project from Coastal.
On October 8, 1998, Latin American Energy asserted cross-claims against
Trigen, Coastal and Tenneco claiming that it too had been denied its carried
interest in the Project. On October 28, 1998, La Casa Castro asserted
cross-claims against Trigen and on November 6, 1998, Coastal asserted
cross-claims against Trigen for indemnification, each alleged that Trigen failed
to disclose ESI's claimed interest to Tenneco and that Trigen was responsible
for any damages that each may be required to pay to ESI and Latin American.
On December 15, 1998, Trigen filed an amended answer denying liability
for these claims and cross-claimed against Latin American Energy, Tenneco,
Coastal and La Casa Castro, asserting that these parties were responsible for
any damages owed to ESI and Latin American. On December 23, 1998, ESI and Latin
American dismissed without prejudice their claims against Trigen.
Coastal and La Casa Castro are continuing to assert their claims
against Trigen for any damages they may be required to pay to ESI or Latin
American. At this time, the case is in the early stages of discovery and as such
we are not able to estimate the amount of damages that ESI and Latin American
are seeking. We believe we have good defenses to Coastal's claims and La Casa
Castro's claims. Accordingly, we have not recognized any loss or expense (other
than defense costs) with respect to this matter, although we cannot predict the
final outcome.
F-24
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHAREHOLDER CLASS ACTIONS AGAINST TRIGEN
COMPLAINTS OF FOTHERGILL, CORTEZ, AND BERKOWITZ.
On September 23, 1999, three complaints were filed in the Court of
Chancery of the State of Delaware against: Trigen Energy Corporation, Suez
Lyonnaise Des Eaux SA, Patrick Buffet, George F. Keane, Thomas R. Casten,
Philippe Brongniart, Olivier Degos, Patrick Desnos, Richard E. Kessel, Charles
E. Bayless, Michel Bleitrach, Dominique Mangin D'Ouince and Michel Cassou. The
individual defendants were sued in their capacity as Trigen directors and/or
former Trigen directors. The complaints were filed, respectively, by Michael
Fothergill, Rosa Cortez and Sarah Berkowitz. Each complaint was filed
purportedly as a class action on behalf of the Company's shareholders. The
complaints raised substantially identical allegations: that Trigen received a
proposal from Suez to take Trigen private for $22.00 per share in cash. The
plaintiffs alleged that this price does not represent the true value of Trigen
and is unfair to the minority shareholders. Plaintiffs further alleged that
because Suez owns approximately 52% of Trigen's outstanding shares, Suez has the
power to effectuate the transaction without regard to the minority shareholders.
Plaintiffs sought class certification, declaratory and injunctive relief (or
money damages if the transaction is consummated), and an accounting. By
agreement of the parties, an order has been entered consolidating all three
actions under the Fothergill caption.
On February 22, 2000, counsel for ELYO and the plaintiffs reached an
agreement to settle this lawsuit, subject to court approval. The settlement does
not require any payment to the plaintiffs from the Company or its directors.
Accordingly, we have not recognized any loss or expense (other than defense
costs and certain costs of providing Notice of settlement to the Class members)
with respect to this matter, although we cannot predict the final outcome. The
parties are in the process of submitting this settlement to the Court of
Chancery of the State of Delaware for approval.
COMPLAINT OF RICE.
On March 16, 2000, Adam Rice filed a complaint in the Supreme Court of
the State of New York, County of Westchester against Trigen Energy Corporation,
Suez Lyonnaise Des Eaux S.A., Elyo, S.A., T Acquisition Corporation, Christine
Morin-Postel, Richard E. Kessel, George Keane, Patrick Buffet, Olivier Degos,
Philippe Brongniart, Michel Bleitrach, Dominique Mangin D'Ouince and Charles
Bayless. The complaint was filed purportedly as a class action on behalf of the
Company's shareholders. The individual defendants were sued in their capacity as
Trigen directors. The plaintiff alleged that the defendants have breached their
fiduciary duties to plaintiff and our public shareholders by not renegotiating
and/or reformulating the terms of the tender offer by which T Acquisition
Corporation has offered to purchase all of our outstanding shares at a price of
$23.50 per share. Plaintiff seeks class certification and money damages as well
as other unspecified relief. We believe we have good defenses to these claims.
Accordingly, we have not recognized any loss or expense (other than defense
costs) with respect to this matter, although we cannot predict the final
outcome.
OTHER LITIGATION
We are subject from time to time to various other claims that arise in
the normal course of business, and we believe that the outcome of these matters
(either individually or in the aggregate) will not have a material adverse
effect on our business results of operation or financial condition.
F-25
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
TRIGEN ENERGY CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
1999 1998
---- -----
<S> <C> <C>
Assets
Cash and cash equivalents........................................................ $ 563 $ 541
Other current assets............................................................. 1,119 2,798
Property, plant and equipment, net............................................... 5,978 12,148
Deferred costs and other assets, net............................................. 4,449 4,333
Investments in and amounts due from subsidiaries, net............................ 402,547 314,448
--------- ---------
Total assets................................................................... $414,656 $334,268
======== ========
Liabilities and Stockholders' Equity
Short-term debt.................................................................. $ --- $ ---
Long-term debt................................................................... 243,000 178,000
Other liabilities................................................................ 11,633 8,340
---------- ----------
Total liabilities.............................................................. 254,633 186,340
Stockholders' equity:
Preferred stock.................................................................. --- ---
Common stock..................................................................... 124 124
Additional paid-in capital....................................................... 120,376 120,595
Retained earnings................................................................ 45,890 36,417
Unearned compensation - restricted stock......................................... (5,101) (4,967)
Cumulative translation adjustment................................................ (1,163) (2,002)
Treasury stock, at cost.......................................................... (103) (2,239)
----------- -----------
Total stockholders' equity..................................................... 160,023 147,928
--------- ---------
Total liabilities and stockholders' equity..................................... $414,656 $334,268
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
S-1
<PAGE>
SCHEDULE I--(CONTINUED)
TRIGEN ENERGY CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues
Management fees and costs recovered from subsidiaries........................ $14,774 $11,806 $12,472
Other revenues............................................................... 6,480 --- ---
Interest income from subsidiaries............................................ 8,914 7,048 2,276
-------- -------- --------
Total revenues............................................................. 30,168 18,854 14,748
Costs and expenses
Production and operating costs............................................... 6,480 --- ---
General and administrative................................................... 20,429 19,248 15,555
Interest expense............................................................. 13,691 9,081 3,247
Other (income) expense, net.................................................. (1,223) 90 (1,034)
-------- -------- --------
Total costs and expenses................................................... 39,377 28,419 17,768
-------- -------- --------
Loss before income tax benefit, equity in earnings of subsidiaries,
extraordinary item and cumulative effect of a change in accounting principle. (9,209) (9,565) (3,020)
Income tax benefit.............................................................. 3,223 3,452 1,057
Equity in earnings of subsidiaries, net......................................... 22,094 12,670 6,988
-------- -------- --------
Earnings before extraordinary item and cumulative effect of a change
in accounting principle....................................................... 16,108 6,557 5,025
Extraordinary loss from extinguishment of subsidiaries' debt, net of subsidiaries'
income tax benefits.......................................................... --- (299) ---
Cumulative effect of a change in accounting principle, net of subsidiaries'
income tax benefits (4,903) --- ---
-------- -------- --------
Net earnings $ 11,205 $ 6,258 $ 5,025
======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
S-2
<PAGE>
SCHEDULE I--(CONTINUED)
TRIGEN ENERGY CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- -----
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings............................................................ $ 11,205 $ 6,258 $ 5,025
Reconciliation of net earnings to cash provided by operating activities:
Equity in earnings of subsidiaries.................................... (22,094) (12,670) (6,988)
Dividends received from subsidiaries.................................. 470 --- ---
Cumulative effect of a change in accounting principle................. 4,903 --- ---
Gain on sale of marketable securities................................. (1,765) --- (612)
Extraordinary item.................................................... --- 299 --
Other, net............................................................ 5,479 1,805 (1,417)
--------- --------- ---------
Net cash used in operating activities............................... (1,802) (4,308) (3,992)
--------- --------- ---------
Cash flows from investing activities
Capital expenditures.................................................... (962) (441) (992)
Purchase of a fuel management agreement and related inventory........... --- --- (8,871)
Acquisition of energy facilities........................................ (5,822) (67,901) ---
Investments in and advances to subsidiaries, net........................ (57,438) (22,011) (20,041)
Investment in non-consolidated partnerships............................. (310) (6,417) (12,294)
Purchase of marketable securities....................................... (1,013) --- (4,139)
Sale of marketable securities........................................... 2,778 --- 4,751
--------- --------- ---------
Net cash used in investing activities............................... (62,767) (96,770) (41,586)
--------- --------- ---------
Cash flows from financing activities
Short-term debt, net.................................................... --- --- (5,000)
Proceeds of long-term debt.............................................. 66,000 107,000 45,500
Payments of long-term debt.............................................. (1,000) (3,500) ---
Dividends paid.......................................................... (1,731) (1,722) (1,682)
Issuance of common stock, net........................................... 1,322 ( 561) 1,309
--------- --------- ---------
Net cash provided by financing activities........................... 64,591 101,217 40,127
--------- --------- ---------
Cash and cash equivalents..................................................
Increase/(decrease)..................................................... 22 139 (5,451)
At beginning of year.................................................... 541 402 5,853
--------- --------- ---------
At end of year.......................................................... $ 563 $ 541 $ 402
========= ========= =========
</TABLE>
See accompanying notes to condensed financial statements.
S-3
<PAGE>
SCHEDULE I--(CONTINUED)
TRIGEN ENERGY CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(1) TRIGEN ENERGY CORPORATION (PARENT COMPANY) FINANCIAL STATEMENTS
The accompanying condensed financial information has been prepared in
accordance with Regulation S-X of the Securities Act of 1933 and does not
include all information and notes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles since the user of these statements is assumed to
read them in conjunction with Trigen Energy Corporation's consolidated financial
statements and the notes thereto for the year ended December 31, 1999 included
elsewhere in this document.
(2) TRANSACTIONS WITH SUBSIDIARIES
The Parent Company derives cash from management fees and costs
recovered from its subsidiaries, distributions by its subsidiaries and, at
times, repayment to the Parent Company from proceeds of long-term financing
obtained by the subsidiaries for funds previously advanced to subsidiaries for
construction in advance of obtaining permanent financing. Certain subsidiaries
have restrictive debt agreements which generally permit distributions to the
Parent Company only when certain ratios and other financial covenants are
satisfied. Cash available to the Parent Company without restrictions as to use,
including amounts distributable by subsidiaries was $6.5 million at December 31,
1999, and $1.4 million at December 31, 1998.
(3) DEBT
On April 4, 1997, the Parent Company entered into a $160.0 million
revolving credit agreement with several banks. This facility was used to repay
indebtedness outstanding under a $62.5 million credit facility entered into in
1995. The $160.0 million facility is for an initial period of three years and
may be extended by a total of two one-year periods. Borrowings under the
facility bear interest, at the Parent Company's option, at an annual rate equal
to the base rate or the LIBOR rate plus 3/4%. The base rate is the higher of the
prime lending rate or the Federal Reserve reported Federal funds rate plus 1/2%.
On June 10, 1997, the Parent Company amended the $160.0 million credit agreement
by reducing the facility to $125.0 million and entered into a new $35.0 million
revolving credit facility with the same group of banks. The new facility is for
an initial 364-day period and may be extended annually at the option of the
banks. The terms and conditions of both facilities are the same. On September
23, 1998, the $125.0 million three year facility was increased by $35.75 million
and the initial period was increased by one year. The base rate is the higher of
the prime lending rate or the Federal Reserve reported Federal funds rate. The
average effective rate on the facility was 6.0% in 1999 and the rate at December
31, 1999 was 7.2%.
The Parent Company has issued certain guarantees relating to the debt
of UTC. The Parent Company has guaranteed the UTC debt in an amount which is
limited, except for liabilities of UTC arising from environmental matters, to
the lesser of $31.7 million and one-third of the UTC debt commitments.
On December 30, 1998, the Company borrowed from an affiliate, Cofreth
American Corporation, $50.0 million for acquisitions and project development.
The $50.0 million was initially used to partially pay down the Corporate
facility. The $50.0 million is subordinate and junior in right of payment to all
other debt. The subordinated debt may be redeemed in whole or in part at the
option of Cofreth American Corporation with the net proceeds of an equity sale
by the Company. The debt matures on December 31, 2010 and the interest rate is
7.38%.
(4) INCOME TAXES
The Parent Company and its domestic subsidiaries file a consolidated
U.S. Federal income tax return. The Parent Company's state income taxes are
filed on a separate return basis. A valuation allowance for state tax loss
carryforwards has been provided because there are carryforwards which may expire
before being used.
S-4
<PAGE>
SCHEDULE II
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- ----------- ------- -------- ---------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts.............................. $1,128 331 (385) $1,074
Year ended December 31, 1998:
Allowance for doubtful accounts.............................. $1,074 317 (204) $1,187
Year ended December 31, 1999:
Allowance for doubtful accounts.............................. $1,187 725 (646) $1,266
</TABLE>
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 30, 2000.
TRIGEN ENERGY CORPORATION
By: /s/ Richard E. Kessel
Richard E. Kessel
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ RICHARD E. KESSEL
- ------------------------------- Director, President and Chief Executive Officer
Richard E. Kessel (Principal Executive Officer)
/s/ MARTIN S. STONE Vice President-Finance, Chief Financial Officer
- -------------------------------
Martin S. Stone
/s/ DANIEL J. SAMELA Controller (Principal Accounting Officer)
- -------------------------------
Daniel J. SAMELA
Director and Chairman of the Board
- -------------------------------
Christine Morin-Postel
/s/ GEORGE F. KEANE Director
- -------------------------------
George F. Keane
Director
- -------------------------------
Dominique Mangin d'Ouince
/s/ OLIVIER DEGOS Director
- -------------------------------
Olivier Degos
/s/ MICHEL BLEITRACH Director
- -------------------------------
Michel Bleitrach
Director
- -------------------------------
Philippe Brongniart
Director
- -------------------------------
Patrick Buffet
/s/ CHARLES E. BAYLESS Director
- -------------------------------
Charles E. Bayless
</TABLE>
<PAGE>
TRIGEN ENERGY CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
2.1** Stock Purchase Agreement, dated December 9, 1997, between Canal
Industries, Inc. and ChemFirst Inc. as Sellers, and Trigen Energy
Corporation, as Buyer (Form 8-K Current Report dated January 27, 1998.)
2.2** Final Settlement Decree and Order of the Pennsylvania Court of Common
Pleas Philadelphia County, dated April 23, 1999. (Form 8-K Current
Report dated April 26, 1999)
3.1** Restated Certificate of Incorporation of Trigen (Registration Statement
No. 33-80410).
3.2** Restated and Amended By-Laws of Trigen (Registration Statement No.
33-80410).
4.1** Credit Agreement, dated as of December 2, 1993, among Trigen
Acquisition Inc., Trigen, the Lenders named therein, and Toronto
Dominion (Texas), Inc., as Agent (Registration Statement No. 33-80410).
4.2** Loan Agreement, dated as of June 1, 1993, between Trigen-Trenton
District Energy Company, L.P. and the New Jersey Economic Development
Authority (District Heating and Cooling Revenue Bonds) (Registration
Statement No. 33-80410).
4.3 Trigen Energy Corporation hereby undertakes to furnish a copy of any
instrument with respect to long term debt not otherwise filed herewith
to the Securities and Exchange Commission upon request.
4.4** See Exhibits 3.1 and 3.2 (Registration Statement No. 33-80410).
4.5** Revolving Credit Facility, Dated as of April 4, 1997 between the
Company, Banks Listed on the Signature Page and Societe Generale as
Issuing Bank and Agent. (Form 10-Q Quarterly Report for the quarterly
period ended June 30, 1997).
4.6** Amendment No.1, Dated as of June 10, 1997, to the Revolving Credit
Facility Dated as of April 4, 1997. (Form 10-Q Quarterly Report for the
quarterly period ended June 30, 1997).
4.7** Revolving Credit Facility, Dated as of June 10, 1997 between the
Company, Banks Listed on the Signature Page and Societe Generale as
Issuing Bank and Agent. (Form 10-Q Quarterly Report for the quarterly
period ended June 30, 1997).
4.8** Amended and Restated Credit and Acceptance Agreement dated as of
December 20, 1996 among Trigen Energy Canada Inc., Certain Commercial
Lending Institutions as the Lenders, Societe Generale, New York Branch,
as the Administrative Agent for the Lenders and Societe Generale
(Canada) as the Collateral Agent for the Lenders. (Form 10-K Annual
Report for 1996).
4.9** Amendment No. 1 dated as of June 10, 1997 to the Revolving Credit
Facility dated as of April 4, 1997 among Trigen Energy Corporation,
Societe Generale and the banks listed on the signature pages thereof.
(Form 10-K Annual Report for 1998)
4.10** Amendment No. 1 dated as of September 22, 1998 to the 364-Day Revolving
Credit Facility dated as of June 10, 1997 among Trigen Energy
Corporation, Societe Generale and the banks listed on the signature
pages thereof. (Form 10-K Annual Report for 1998)
4.11** Amendment No. 2 dated as of November 6, 1997 to the Revolving Credit
Facility dated as of April 4, 1997 among Trigen Energy Corporation,
Societe Generale and the Banks listed on the signature pages thereof.
(Form 10-K Annual Report for 1998)
4.12** Amendment No. 3 dated as of September 22, 1998 to the Revolving Credit
Facility dated as of April 4, 1997 among Trigen Energy Corporation,
Societe Generale and the Banks listed on the signature pages thereof.
(Form 10-K Annual Report for 1998)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.13** Unsecured Subordinated Redeemable Term Note for $50,000,000 dated as of
December 30, 1998 between Trigen Energy Corporation and Cofreth
American Corporation. (Form 10-K Annual Report for 1998)
9.1** Stockholders' Agreement, dated August 10, 1994 by and among Trigen,
Thomas R. Casten, Michael Weiser, Eugene E. Murphy, Richard E. Kessel,
John J. Ludwig, Cofreth American Corporation and Compagnie Parisienne
de Chauffage Urbain, S.A. (Registration Statement No. 33-80410).
9.2** Stockholder's Agreement dated as of January 17, 1996 by and between
Thomas Ewing and Trigen Energy Corporation.
10.1** Reimbursement and Credit Agreement, dated as of September 1, 1992,
among Trigen-Oklahoma District Energy Corporation, the Banks named
therein, and Societe Generale, Southwest Agency, as Agent and
Collateral Agent (Registration Statement No. 33-80410).
10.2** Loan Agreement, dated as of September 1, 1992, between Oklahoma City
Industrial and Cultural Facilities Trust, as Lender and Trigen-Oklahoma
District Energy Corporation, as Borrower (District Heating and Cooling
Revenue Bonds, Series 1992) (Registration Statement No. 33-80410).
10.3** Lease Agreement, dated as of August 1, 1990, between Town of Hempstead
Industrial Development Agency and Nassau District Energy Corporation
(Industrial Development Revenue Bonds) (Registration Statement No.
33-80410).
10.4** Letter Agreement, dated February 24, 1994, between Trigen and Credit
Commerciale de France, New York Branch, (Registration Statement No.
33-80410).
10.5** Standby Letter of Credit Agreement, dated November 16, 1993, between
Trigen and Societe Generale, New York Branch (Registration Statement
No. 33-80410).
10.6** Application and Agreement for Irrevocable Standby Letter of Credit,
dated December 14, 1992, between Societe Generale, New York Branch, and
Trigen-Chicago District Energy Corporation (Registration Statement No.
33-80410).
10.7** Noncompetition Agreement, dated December 3, 1993, among Catalyst Energy
Corporation, Great Lakes Power Limited, Century Power Corporation,
Trigen Acquisition, Inc. and Trigen (Registration Statement No.
33-80410).
10.8** Site Lease Agreement, dated as of December 16, 1992, between
Metropolitan Pier and Exposition Authority and Trigen-Peoples District
Energy Company (Registration Statement No. 33-80410).
10.9** Lease Agreement, dated as of November 30, 1993, between Housing
Authority of Baltimore City and Baltimore Thermal Energy Corporation
(Registration Statement No. 33-80410).
10.10** Spring Gardens Land Lease, dated February 28, 1985, between Baltimore
Gas and Electric Company and Baltimore Steam Company (Registration
Statement No. 33-80410).
10.11** Lease Agreement, dated as of June 26, 1991, between King Real Estate
Corporation, Trustee of King Terminal Trust and Boston Thermal Energy
Corporation, as amended by the First Amendment to Lease, dated July 5,
1991, and by the Second Amendment to Lease, dated June 23, 1992.
(Registration Statement No. 33-80410).
10.12** Lease Agreement, dated as of April 1, 1991, between Aetna Life
Insurance Company and Boston Thermal Energy Corporation (Registration
Statement No. 33-80410).
10.13** Lease Agreement, dated March 29, 1990, between Kansas City Power &
Light Company and Trigen-Kansas City District Energy Corporation
(Registration Statement No. 33-80410).
10.14** Indenture, dated September 14, 1993, between George Chioros Holdings
Ltd., as Lessor, and Trigen-London District Energy Corporation, as
Lessee (Registration Statement No. 33-80410).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.15** Standard Lease, dated as of August 7, 1990, between the United States
Postal Service and Trigen-Oklahoma District Energy Corporation
(Registration Statement No. 33-80410).
10.16** Schuylkill Station Lease Agreement, dated January 30, 1987, between
Philadelphia Electric Company and Philadelphia Thermal Corporation
(Registration Statement No. 33-80410).
10.17** Amended and Restated Site Lease, dated September 17, 1993, between
Philadelphia Thermal Energy Corporation and Grays Ferry Cogeneration
Partnership (Registration Statement No. 33-80410).
10.18** Lease Agreement, dated as of March 5, 1975, between the City of St.
Louis and Union Electric Company (Registration Statement No. 33-80410).
10.19** Ground Lease, dated as of December 1, 1982, between the City of Trenton
and Trenton District Energy Company (Registration Statement No.
33-80410).
10.20** Thermal Energy Agreement, dated July 22, 1981, between Mercer Medical
Center and Trenton District Energy Company, as amended September 1981,
as amended August 22, 1984, and as further amended May 27, 1986
(Registration Statement No. 33-80410).
10.21** See Exhibits 4.1, 4.2 and 4.3 (Registration Statement No. 33-80410).
10.22** Trigen Energy Corporation 1994 Director Stock Plan (Registration
Statement No. 33-80410).
10.23** Trigen Energy Corporation 1994 Stock Incentive Plan (Registration
Statement No. 33-80410).
10.24** Intercompany Services and License Agreement, dated August 10, 1994,
between Ufiner-Cofreth, S.A. and Trigen (Registration Statement No.
33-80410).
10.25** Form of Employment Agreement, dated as of August 12, 1994 between
Trigen and Thomas R. Casten (Form 10-K Annual Report for 1994).
10.26** Form of Employment Agreement, dated as of August 12, 1994, between
Trigen and Richard E. Kessel (Form 10-K Annual Report for 1994).
10.27** Form of Employment Agreement, dated as of August 12, 1994, between
Trigen and Eugene E. Murphy (Form 10-K Annual Report for 1994).
10.28** Form of Employment Agreement, dated as of August 12, 1994, between
Trigen and Michael Weiser (Form 10-K Annual Report for 1994).
10.29** Acquisition Agreement dated March 1, 1996 among Adwin (Schuylkill)
Cogeneration, Inc., O'Brien (Schuylkill) Cogeneration, Inc. and
Trigen--Schuylkill Cogeneration, Inc.
10.30** Amended and Restated Partnership Agreement dated March 1, 1996 among
Adwin (Schuylkill) Cogeneration, Inc., O'Brien (Schuylkill)
Cogeneration, Inc. and Trigen--Schuylkill Cogeneration, Inc.
10.32** Form of Employment Agreement, dated as of March 1, 1995, between Trigen
and James F. Lowry. (Form 10-K Annual Report for 1998)
10.33** Form of Incentive Stock Option Agreement between Trigen and Thomas R.
Casten, Richard E. Kessel, Eugene E. Murphy, Steven G. Smith and
Richard S. Strong (Form 10-Q Quarterly report for the period ended
September 30, 1998).
10.34** Form of Incentive Stock Option Agreement between Trigen and Martin S.
Stone (Form 10-Q Quarterly report for the period ended September 30,
1998).
10.35** Agreement and Plan of Merger dated as of January 19, 2000 among Elyo, T
Acquisition Corp. and the Company (Form 8-K Current Report dated
January 24, 2000)
10.36** Tender and Voting Agreement between Elyo, T Acquisition Corp., George
F. Keane, Charles E. Bayless, et al. (Form 8-K Current Report dated
January 24, 2000)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.37** Letter Agreement among Elyo and Thomas R. Casten dated January 19, 2000
(Form 8-K Current Report dated January 24, 2000)
10.38** Separation Agreement and Release, dated as of January 19, 2000 between
Trigen Energy Corporation and Thomas R. Casten (Schedule TO (Rule
14D-100) filed by T Acquisition Corp., Elyo and Suez Lyonnaise des Eaux
dated February 28, 2000)
10.39** Form of Confidentiality, Non-Compete and Severance Agreement, dated
July 28, 1998 between Trigen and Martin S. Stone (Form 10-Q Quarterly
Report for the Quarterly period ended June 30, 1999)
11* Computation of Earnings Per Share.
12.1* Computation of Ratio of Earnings to Fixed Charges.
21* Subsidiaries of Trigen Energy Corporation.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of KPMG LLP.
23.3* Consent of Deloitte & Touche LLP.
27* Financial Data Schedule (for electronic filing only)
99* Grays Ferry Cogeneration Partnership financial statements for the years
ended December 31, 1999 and 1998.
</TABLE>
* Filed herewith.
** Incorporated by reference to the corresponding exhibit to the indicated
prior filing.
<PAGE>
Exhibit 11
Trigen Energy Corporation and Subsidiaries
Computation of Earnings Per Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Basic earnings per common share
- ----------------------------------------------
Earnings before extraordinary item $16,108 $6,557 $5,025 $14,051 $10,564
Average equivalent shares
Common shares outstanding 12,049 12,007 12,011 11,612 11,390
Basic earnings per common share $ 1.34 $ 0.55 $ 0.42 $ 1.21 $ 0.93
Diluted earnings per common share
- ----------------------------------------------
Earnings before extraordinary item
and cumulative effect of a change in
accounting principles $16,108 $ 6,557 $ 5,025 $ 14,051 $ 10,564
Average equivalent shares
Common shares outstanding 12,049 12,007 12,011 11,612 11,390
Stock options and restricted
stock 99 2 119 82 --
------- ------- ------- -------- ---------
Average equivalent shares 12,148 12,009 12,130 11,694 11,390
------- ------- ------- -------- ---------
Diluted earnings per common share $ 1.33 $ 0.55 $ 0.41 $ 1.20 $ 0.93
------- ------- ------- -------- ---------
</TABLE>
<PAGE>
Exhibit 12.1
Trigen Energy Corporation and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges (in thousands)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings before extraordinary
item and cumulative effect of
a change in accounting principle $16,108 $6,557 $5,025 $14,051 $10,564
Add (deduct):
Income taxes 11,380 4,575 3,491 9,252 7,324
Fixed charges 28,458 25,666 20,508 20,145 20,883
Interest capitalization (1,013) (524) (374) (328) (300)
(Income)/losses of less
than 50% owned companies (7,396) (4,475) 266 (322) (316)
Distributions from less than
50% owned companies 2,000 -- -- -- --
-------- -------- -------- -------- --------
Earnings before extraordinary
item and cumulative effect of
a change in accounting principle,
as adjusted $ 49,537 $31,799 $28,916 $42,798 $38,155
Fixed Charges
Interest expense $25,994 $23,742 $18,840 $18,840 $19,890
Interest capitalized 1,013 524 374 328 300
Portion of rents representative
of interest factor(1) 1,451 1,400 1,158 977 693
-------- ------- -------- -------- --------
Total fixed charges $28,458 $25,666 $20,508 $20,145 $20,883
-------- ------- -------- -------- --------
Ratio of earnings to fixed charges 1.7 1.2 1.4 2.1 1.8
-------- ------- --------- -------- -------
</TABLE>
- --------------------
Note:
(1) Estimated to be 1/3 of total rent expense.
<PAGE>
Exhibit 21
TRIGEN ENERGY CORPORATION AND
SUBSIDIARIES
Baltimore Steam Company
Baltimore Thermal Development Corporation
Catalyst Steam Corporation
Energy Equipment Leasing LLC
Gray's Ferry Cogeneration Partnership
3003252 Nova Scotia Limited
NSP Trigen Incorporated
Ohio Thermal Energy Corp.
Ohio Valley Coke & Energy LLC
Owings Mills Energy Equipment Leasing LLC
Philadelphia United Power Corporation
Philadelphia Thermal Development Corporation
Philadelphia Steam Development Corporation
Philadelphia Thermal Services Corporation
St. Louis Thermal Development Corporation
Thermal Technologies, Inc.
Trenton Energy Corporation
Tulsa Cold Storage, Inc.
Trigen Acquisitions Corp.
Trigen-Alabama Energy Corporation
Trigen-Baltimore Energy Corporation
Trigen-Barford Company LLC
Trigen-Biopower, Inc.
Trigen-Boston Energy Corporation
Trigen Building Services Corporation
Trigen-Chicago Energy Corporation
TRIGEN-CHOLLA LLC
Trigen-Cinergy Solutions LLC
TRIGEN-CINERGY SOLUTIONS OF ASHTABULA LLC
TRIGEN-CINERGY SOLUTIONS OF BALTIMORE LLC
Trigen-Cinergy Solutions of Boca Raton, LLC
Trigen-Cinergy Solutions of Cincinnati LLC
TRIGEN-CINERGY SOLUTIONS OF COLLEGE PARK LLC
TRIGEN-CINERGY SOLUTIONS OF DANVILLE
Trigen-Cinergy Solutions of Illinois LLC
Trigen-Cinergy Solutions of Orlando LLC
TRIGEN-CINERGY SOLUTIONS OF OWINGS MILLS LLC
Trigen-Cinergy Solutions of Rochester LLC
TRIGEN-CINERGY SOLUTIONS OF SAN DIEGO LLC
TRIGEN-CINERGY SOLUTIONS OF SILVER GROVE LLC
Trigen-Cinergy Solutions of The Southeast LLC
Trigen-Cinergy Solutions of St. Paul LLC
Trigen-Cinergy Solutions of Tuscola, LLC
Trigen-College Park Energy Corporation
Trigen-Colorado Energy Corporation
TRIGEN-DELAWARE VALLEY ENERGY CORPORATION
Trigen Development Corporation
Trigen Energia, Inc.
Trigen Energy Canada Inc.
<PAGE>
Trigen Energy Corporation
Trigen-Ewing Power, Inc.
The Trigen Foundation
Trigen Fuels Corporation
Trigen-Glen Cove Energy Corporation
Trigen-Golden Energy Corporation
Trigen-HQ Energy Services LLC
Trigen Innovations, Inc.
Trigen Insulation Corporation
Trigen-Kansas City Energy Corporation
Trigen Lindbergh Corporation
Trigen-Maryland Energy Corporation
Trigen-Maryland Steam Corporation
Trigen-Mid-Atlantic Development Corporation
Trigen M/I Corporation
Trigen-Missouri Energy Corporation
Trigen-Nassau Energy Corporation
Trigen National Capital, Inc.
Trigen-Nations Energy Company, LLLP
Trigen-New England Energy Corporation
Trigen-New Jersey Development Corporation
Trigen-Oklahoma Energy Corporation
Trigen-Oklahoma City Energy Corporation
Thermal Science Technologies LLC
Trigen-Peoples District Energy Company
TRIGEN-PHILADELPHIA ENERGY CORPORATION
Trigen Power Resources, Inc.
Trigen-Schuylkill Cogeneration, Inc.
Trigen Services Corporation
Trigen Services of College Park, Inc.
Trigen Services of Illinois, Inc.
Trigen Services of San Diego, Inc.
Trigen Energy Services, Inc.
Trigen Solutions, Inc.
Trigen-St. Louis Energy Corporation
TRIGEN-SYRACUSE ENERGY CORPORATION
Trigen-Trenton Energy Company, L.P.
Trigen-Tulsa Energy Corporation
United Thermal Corporation
United Thermal Development Corporation
United Thermal Services Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
AS INDEPENDENT PUBLIC ACCOUNTANTS, WE HEREBY CONSENT TO THE INCORPORATION BY
REFERENCE IN THIS FORM 10-K OF OUR REPORT DATED FEBRUARY 9, 2000 INCLUDED IN THE
COMPANY'S PREVIOUSLY FILED REGISTRATION STATEMENTS NO. 333-4198 ON FORM S-3; AND
NO. 33-92468, NO. 333-36151, NO. 33-83736 AND NO. 333-87277 ON FORM S-8 AND
POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-8 OF TRIGEN ENERGY CORPORATION AND
SUBSIDIARIES AS OF DECEMBER 31, 1999.
ARTHUR ANDERSEN LLP
STAMFORD, CONNECTICUT
MARCH 29, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
TRIGEN ENERGY CORPORATION
WE CONSENT TO INCORPORATION BY REFERENCE IN THE REGISTRATION STATEMENTS NO.
333-4198 ON FORM S-3, NO. 33-92468 AND NO. 333-36151 ON FORM S-8, AND NO.
33-83736 ON FORM S-8 AND POST EFFECTIVE AMENDMENT NO. 1 TO FORM S-8 AND NO.
333-87277 ON FORM S-8 OF TRIGEN ENERGY CORPORATION AND SUBSIDIARIES OF OUR
REPORT DATED FEBRUARY 3, 1998, RELATING TO THE CONSOLIDATED STATEMENT OF
OPERATIONS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER
31, 1997 OF TRIGEN ENERGY CORPORATION AND SUBSIDIARIES, AND THE RELATED
SCHEDULES, AS OF AND FOR THE PERIODS DESCRIBED THEREIN, WHICH REPORT APPEARS
IN THE DECEMBER 31, 1999 ANNUAL REPORT ON FORM 10-K OF TRIGEN ENERGY
CORPORATION.
KPMG PEAT MARWICK LLLP
MARCH 28, 2000
STAMFORD, CONNECTICUT
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
WE CONSENT TO THE INCORPORATION BY REFERENCE IN THE PREVIOUSLY FILED
REGISTRATION STATEMENTS ON (I) FORM S-3 (FILE NO. 333-4198) AND (II) FORMS S-8
(NO. 33-92468, 333-36151, 33-83736 AND POST EFFECTIVE AMENDMENT NO. 1 TO
FORM S-8 AND NO. 333-87277) OF TRIGEN ENERGY CORPORATION OF OUR REPORT, DATED
JANUARY 28, 2000 RELATING TO THE BALANCE SHEETS OF GRAYS FERRY COGENERATION
PARTNERSHIP AS OF DECEMBER 31, 1999 AND 1998 AND THE RELATED STATEMENTS OF
CHANGES IN PARTNERS' EQUITY AND CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
1999, 1998 AND 1997 AND THE RELATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1999 AND THE PERIOD JANUARY 9, 1998 (DATE OF COMMERCIAL OPERATION)
TO DECEMBER 31, 1998 APPEARING IN THIS FORM 10K.
DELOITTE & TOUCHE LLP
PHILADELPHIA, PENNSYLVANIA
MARCH 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 20,008
<SECURITIES> 0
<RECEIVABLES> 51,571
<ALLOWANCES> 1,266
<INVENTORY> 8,799
<CURRENT-ASSETS> 82,430
<PP&E> 630,312
<DEPRECIATION> 114,472
<TOTAL-ASSETS> 727,506
<CURRENT-LIABILITIES> 97,005
<BONDS> 406,755
0
0
<COMMON> 124
<OTHER-SE> 159,899
<TOTAL-LIABILITY-AND-EQUITY> 727,506
<SALES> 280,420
<TOTAL-REVENUES> 280,420
<CGS> 200,028
<TOTAL-COSTS> 240,869
<OTHER-EXPENSES> (13,931)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,994
<INCOME-PRETAX> 27,488
<INCOME-TAX> 11,380
<INCOME-CONTINUING> 16,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (4,903)
<NET-INCOME> 11,205
<EPS-BASIC> .93
<EPS-DILUTED> .92
</TABLE>
<PAGE>
EXHIBIT 99
- --------------------------------------------------------------------------------
GRAYS FERRY COGENERATION PARTNERSHIP
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997 AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Grays Ferry Cogeneration Partnership:
We have audited the accompanying balance sheets of Grays Ferry Cogeneration
Partnership (the "Partnership"), as of December 31, 1999 and 1998, and the
related statements of changes in partners' capital, and cash flows for the years
ended December 31, 1999, 1998 and 1997 and the related statements of income for
the year ended December 31, 1999 and for the period from January 9, 1998 (date
of commercial operation) to December 31, 1998. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1999 and
1998, and its cash flows for the years ended December 31, 1999, 1998 and 1997,
and the results of its operations for the year ended December 31, 1999 and for
the period from January 9, 1998 (date of commercial operation) to December 31,
1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2 to the
financial statements, the Partnership has failed to convert the construction
loan to a term loan. As a consequence, the Project Lender has determined that
the Partnership is in default. These actions raise substantial doubt about the
Partnership's ability to continue as a going concern. Management's plans
concerning these matters are also discussed in Note 2. The financial statements
do not include any adjustment that might result from the outcome of these
uncertainties, other than the classification of the Partnership debt as current.
As discussed in Note 8 to the financial statements, in 1999 the Partnership
changed its method of accounting for the cost of start-up activities to conform
with Statement of Position 98-5.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
January 28, 2000
<PAGE>
GRAYS FERRY COGENERATION PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,390,037 $ 18,628,423
Accounts receivable - related parties 2,544,955 10,678,770
Accounts receivable - other 5,901,621 1,805,350
Inventory 1,367,589 2,163,444
Prepaid expenses 123,646 116,976
------------- -------------
Total current assets 28,327,848 33,392,963
PROPERTY, PLANT AND EQUIPMENT:
Plant in service 151,463,731 151,297,117
Accumulated depreciation (14,978,041) (7,402,171)
------------- -------------
Property, plant and equipment - net 136,485,690 143,894,946
------------- -------------
OTHER ASSETS (Net of accumulated amortization of $863,281 and
$426,949 in 1999 and 1998, respectively) 8,890,393 6,875,906
------------- -------------
TOTAL ASSETS $ 173,703,931 $ 184,163,815
============= =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Construction loan (Notes 2 and 6) $ 79,400,682 $ 94,324,049
Subordinated debt (Note 6) 15,000,000 15,000,000
Accounts payable and accrued liabilities - related parties 760,779 3,503,417
Accounts payable and accrued liabilities - other 11,158,154 15,017,152
Retainage payable 5,581,729
------------- -------------
Total liabilities
106,319,615 133,426,347
PARTNERS' CAPITAL 67,384,316 50,737,468
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 173,703,931 $ 184,163,815
------------- -------------
</TABLE>
See notes to financial statements.
- -2-
<PAGE>
GRAYS FERRY COGENERATION PARTNERSHIP
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM JANUARY 9, 1998 (DATE OF COMMERCIAL
OPERATION) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES (Note 4):
Electric energy sales:
Related party $ 14,202,432 $ 50,776,226
Other 36,974,898
Steam sales - related party 14,904,924 14,741,775
Capacity fees:
Electric:
Related party 3,017,100 9,531,900
Other 6,728,400
Steam - related party 2,842,962 3,075,988
------------ ------------
Total revenues 78,670,716 78,125,889
------------ ------------
OPERATING EXPENSES (Note 4):
Fuel and consumables:
Related party 2,423,788 2,531,844
Other 34,579,738 32,394,334
Operation and maintenance:
Related parties 1,681,877 1,527,916
Other 2,777,004 2,819,680
General and administrative:
Related parties 3,029,132 2,772,641
Other 3,103,746 2,373,432
Depreciation 7,575,870 7,402,171
------------ ------------
Total operating expenses 55,171,155 51,822,018
------------ ------------
INCOME FROM OPERATIONS 23,499,561 26,303,871
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 835,733 665,765
Interest expense (11,642,670) (11,674,898)
Interest forgiven (Note 2) 2,887,433
Recovery for business interruption 1,573,511
Other (149,720)
------------ ------------
Total other expense - net (6,495,713) (11,009,133)
------------ ------------
NET INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 17,003,848 15,294,738
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (Note 8) (357,000)
------------ ------------
NET INCOME $ 16,646,848 $ 15,294,738
============ ============
</TABLE>
See notes to financial statements.
- -3-
<PAGE>
GRAYS FERRY COGENERATION PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADWIN COGENAMERICA TRIGEN TOTAL
(SCHUYLKILL) SCHUYLKILL, (SCHUYLKILL) PARTNERS'
COGENERATION, INC. INC. COGENERATION, INC. CAPITAL
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 2,784,214 $ 2,658,516 $ 5,442,730
Capital contributions 10,000,000 10,000,000 $10,000,000 30,000,000
------------ ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 12,784,214 12,658,516 10,000,000 35,442,730
Net income for period 5,098,246 5,098,246 5,098,246 15,294,738
------------ ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 17,882,460 17,756,762 15,098,246 50,737,468
Assignment of partnership
interest (Note 2) (17,882,460) 8,941,230 8,941,230
Net income for period 8,323,424 8,323,424 16,646,848
------------ ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 $ - $35,021,416 $32,362,900 $67,384,316
============ =========== =========== ===========
</TABLE>
See notes to financial statements.
- -4-
<PAGE>
GRAYS FERRY COGENERATION PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 16,646,848 $ 15,294,738
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 7,575,870 7,402,171
Amortization of other assets 436,332 426,949
Cumulative effect of change in accounting principle 357,000
Changes in assets and liabilities which provided (used) cash:
Accounts receivable - related parties 6,988,836 (8,048,677)
Accounts receivable - other (4,096,271) (1,805,350)
Prepaid assets (6,670) (116,976)
Inventories 795,855 (1,142,975)
Accounts payable and accrued expenses - related parties 3,055,461 3,503,417
Accounts payable and accrued expenses - other (3,858,998) 15,017,152
Other assets (2,450,819) (758,260)
------------ ------------
Net cash provided by operating activities 25,443,444 29,772,189
------------ ------------
INVESTING ACTIVITIES:
Construction expenditures (47,489) (6,968,920) $(74,253,351)
Decrease in other construction related expenses (2,439,849)
Decrease in construction related accruals - related parties (558,759)
Decrease in construction related accruals - other (10,710,974) (6,381,865) (4,812,728)
------------ ------------ ------------
Net cash used in investing activities (10,758,463) (13,909,544) (81,505,928)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings under construction loan agreement
and subordinated debt 15,000,000 57,900,000
Repayment of construction loan agreement (14,923,367) (18,675,951)
------------ ------------ ------------
Partners' capital contributions 30,000,000
------------ ------------ ------------
Net cash (used in) provided by financing activities (14,923,367) (3,675,951) 87,900,000
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (238,386) 12,186,694 6,394,072
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,628,423 6,441,729 47,657
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,390,037 $ 18,628,423 $ 6,441,729
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for interest, net of amounts capitalized in 1997 $ 7,702,252 $ 7,770,075 $
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
During 1999, $476,125 of adjustments were made to plant in service due to change orders received for construction,
reducing accrued expenses by $668,854, and the write-off of accounts receivable of $1,144,979.
</TABLE>
See notes to financial statements.
- -5-
<PAGE>
GRAYS FERRY COGENERATION PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION OF PARTNERSHIP
Grays Ferry Cogeneration Partnership, (the "Partnership") was organized on
October 29, 1991 as a Pennsylvania general partnership for the sole purpose of
developing, owning, constructing and operating a 150 megawatt gas and oil fired
qualifying cogeneration facility (the "Project") at the Schuylkill Station of
the Trigen-Philadelphia Energy Corporation ("TPEC") in Philadelphia,
Pennsylvania. For the period from October 29, 1991 (date of inception) through
January 8, 1998, the Partnership was considered a development stage entity as
its sole activity was construction of the facility. Pursuant to 20-year
electricity and 25-year steam purchase agreements between the Partnership and
its two customers, sales of electricity and steam began in January 9, 1998, the
date of Commercial Operation.
The Partnership's date of Commercial Operation of January 9, 1998 was chosen
because it was the date its customers started paying it for electricity and
steam sold to them under its 20-year electricity purchase agreements and its
25-year steam purchase agreements.
The Partnership's original general partners are Adwin Equipment Company, a
wholly owned subsidiary of Eastern Pennsylvania Development Company, which is a
wholly owned subsidiary of PECO Energy Company ("PECO") and O'Brien (Schuylkill)
Cogeneration, Inc., ("O'Brien"), a wholly owned subsidiary of O'Brien
Environmental Energy, Inc. Subsequent to the original Partnership formation,
Adwin (Schuylkill) Cogeneration, Inc. ("Adwin"), a wholly owned subsidiary of
Adwin Equipment Company, was assigned all rights, responsibilities, and
obligations of the Partnership previously held by Adwin Equipment Company. Then
on April 23, 1999, Adwin assigned its share of the Partnership equally to the
remaining partners.
Trigen (Schuylkill) Cogeneration, Inc. ("Trigen"), a wholly owned subsidiary of
Trigen Energy Corporation and an affiliate of TPEC, Philadelphia Thermal
Development Corporation, ("PTDC"), and Philadelphia United Power Corporation,
("PUPCO"), joined the Partnership as an equal partner as of March 1, 1996.
In a reorganization plan, approximately 40% of the capital stock of O'Brien
Environmental Energy, Inc. was acquired by NRG Energy, Inc., and the Company was
renamed NRG Generating (U.S.) Inc. As a result of this reorganization, O'Brien
became known as NRGG (Schuylkill) Cogeneration, Inc. ("NRGG"). During 1998, NRGG
was renamed CogenAmerica Schuylkill, Inc. ("Cogen").
Adwin's partnership interest was assigned to the Partnership on April 23, 1999
in connection with the resolution of the litigation described in Note 2. The two
remaining general partners are equal partners, with net operating profits and
losses and distributions to be allocated to them equally subject to the terms
and provisions as stated in the Amended and Restated Partnership Agreement.
2. CONTINUATION OF BUSINESS
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed below, in 1998, PECO
had taken action to terminate its power purchase agreements with the
Partnership. As a consequence, the banking agent ("Project Lender") determined
that the Partnership was in default on its Credit Agreement. The events of
default with the Project Lender have continued through the date of this report,
as the Partnership has been unable to convert its construction loan to a term
loan as required in its Credit Agreement. Management is currently in the process
of negotiating a term loan with the Project Lender.
Due to the continuing events of default, the Partnership's long-term debt has
been reclassified as current in the Partnership's balance sheets. These actions
raise substantial doubt about the Partnership's ability to continue as a going
concern. The financial statements do not include any adjustment that might
result from the outcome of these uncertainties, other than the classification of
the Project debt as current.
E-1
<PAGE>
PECO - In March 1998, the Partnership received notice from PECO that PECO
believed its power purchase agreements with the Partnership were no longer
effective. PECO refused to pay the rates set forth in the agreements based on
its allegations that the Pennsylvania Public Utilities Commission (the "PPUC")
had denied cost recovery of the power purchase agreements in retail electric
rates.
On March 9, 1998, the Partnership, along with Trigen, NRGG and TPEC
(collectively "Plaintiffs") filed suit against PECO, Adwin and the PPUC
(collectively "Defendants") in United States District Court for the District of
Pennsylvania. The suit sought to enjoin PECO from terminating the power purchase
agreements and to compel PECO to pay the rates set forth in the agreements. In
addition, the Plaintiffs sought actual damages, punitive damages, attorneys'
fees and costs. On March 19, 1998, the federal district court dismissed the
lawsuit for lack of subject matter jurisdiction.
On April 9, 1998, the Plaintiffs filed suit against the Defendants in the Court
of Common Pleas (the "Court") for Philadelphia County in the State of
Pennsylvania. Preliminary injunctive relief against PECO in the form of specific
performance of the electric sale agreements, including payments according to the
contract terms, was granted by the Court on May 6, 1998. A $50,000 bond required
by the Court was posted by the Plaintiffs on May 7, 1998. On May 8, 1998, PECO
sought a stay of the May 6 Order which was denied on May 20, 1998. Also on May
20, 1998, the Court issued a separate order adjudging PECO to be in civil
contempt of the May 6 Order. A Coercive sanction of $50,000 per day, or portion
thereof, for nonpayment of all sums owing by PECO in accordance to the contract
terms was included in the May 20, 1998 Order. An emergency application of stay
by PECO of the May 6 Order was denied on May 22, 1998. As a result, PECO
complied with the May 6 Order on May 22, 1998.
On March 10, 1999, the Court of Common Pleas granted the Partnership's motion
for partial summary judgment effectively deciding the issue of liability on the
contract claim against PECO and in favor of the Partnership. This action had the
effect of limiting the scope of the trial to the amount of damages PECO would
have had to pay the Partnership and the counts of fraud, conversion, breach of
the implied covenant of good faith and fair dealing and breach of fiduciary
duties. Subsequently, the litigation was settled pursuant to a Final Settlement
Decree and Order of the Court of Common Pleas, Philadelphia County, dated April
23, 1999. The settlement was comprised of an amendment to the Power Purchase
Agreements which increased the electric rates paid in 2001-2004 and decreased
the electric rates paid in 2005-2017, and the assignment of PECO's Partnership
interest to the Partnership.
CONSTRUCTION LOAN DEFAULT - On March 17, 1998 the Partnership received a notice
of default from the Project Lender stating that PECO's determination that the
power purchase agreements were no longer in effect constituted a material
adverse effect as defined under the credit agreement. As of the date of this
report, the default has not been waived; accordingly, the Partnership's
long-term debt has been reclassified as current in the Partnership's balance
sheets (see Note 6). The Project Lender has also restricted the Partnership's
ability to make distributions to related parties for certain transactions, along
with distributions to the Partners of Partnership earnings. In addition, the
interest rate charged under the credit agreement increased to prime plus 2.00%,
the penalty interest rate. The Project Lender waived interest accrued at the
penalty rate through April 16, 1999 in connection with the settlement of the
Partnership's litigation with PECO described above.
The notice of default from the Project Lender described above resulted in a
cross-default on the Partnership's subordinate debt. As of the date of this
report, the default has not been waived; accordingly, the Partnership's
subordinate debt has been reclassified as current in the Partnership's balance
sheets (see Note 6). In addition, the interest rate charged on the subordinate
debt increased to prime plus 3.5%, the penalty rate. Westinghouse Electric
Corporation ("Contractor") waived interest accrued at the penalty rate through
April 23, 1999 in connection with the settlement of the Partnership's litigation
with PECO described above.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CAPITALIZED PROJECT COSTS - Construction of the Project was
originally scheduled to be completed on or about December 8, 1997
(see Notes 1 and 5), at an estimated cost of $158,000,000.
$128,000,000 was provided from the proceeds of the credit
agreements (see Note 6), and $30,000,000 was provided from
partners' capital contributions (see Note 7). The remainder has
been financed through accounts and retainage payable. Capitalized
Project costs include costs incurred in the development and
construction of the gas and oil fired 150-megawatt cogeneration
facility. The majority of these costs represent expenditures made
under the Engineering, Procurement and
E-2
<PAGE>
Construction contract between the Partnership and the Contractor.
Other costs represent expenditures for legal, consulting,
engineering and financing activities relating to the Project. All
costs related to the design and construction of the Project from
the date the initial purchase power agreement was reached up to
the date of Commercial Operation on January 9, 1998, have been
capitalized as construction work-in-progress when incurred and
now are classified as plant in service, except deferred financing
fees which are included in other assets.
Substantially all of the property, plant and equipment is being
depreciated over 20 years, the life of the Project's electric and
contingent capacity sales agreements (see Note 4).
(b) REVENUE RECOGNITION - The Partnership's primary source of
revenues is from the sale of steam to TPEC and the sale of
electricity generated by the Project to PECO. Pursuant to the
Steam Sales Agreement, TPEC is obligated to purchase all of its
steam requirements from the Project as defined in the agreement.
Under the provisions of the Power Purchase Agreements, PECO has
agreed to purchase, or accept delivery of, the net electric
output from the Project, up to the lesser of 150 megawatts or the
amount of electric output for which the Federal Energy Regulatory
Commission ("FERC") has certified the Project.
(c) SEGMENT REPORTING - The Partnership currently operates the
Project, which produces two forms of salable energy from one
generation process. Revenues from each of the two forms are
disclosed on the statement of income.
(d) INVENTORY - Inventory, which is recorded on the first-in,
first-out basis, consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Fuel $ 716,276 $1,532,987
Spare Parts 651,313 630,457
---------- ----------
$1,367,589 $2,163,444
========== ==========
</TABLE>
(e) FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair value
amounts presented in these notes to the financial statements have
been determined by the Partnership using available market
information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the
estimates of fair value. The estimates presented herein are not
necessarily indicative of the amounts that the Partnership could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. Such fair value
estimates are based on pertinent information available to
management as of December 31, 1999 and 1998, and have not been
comprehensively revalued for purposes of these financial
statements since such date. Current estimates of fair value may
differ significantly from the amounts presented herein.
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the provisions of SFAS NO.
107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS
PAYABLE, AND OTHER CURRENT ASSETS - The carrying amounts of
these items approximate fair value because of the short
maturity of these instruments.
CONSTRUCTION LOAN AND SUBORDINATED DEBT - Rates currently
available to the Partnership for debt with similar terms and
maturity are used to estimate the fair value of the debt
issued.
E-3
<PAGE>
Accordingly, the fair value of the Construction Loan and
Subordinated Debt approximates the carrying value.
(f) ACCOUNTING FOR INCOME TAXES - The Partnership is not a taxpaying
entity for income tax purposes. Taxable income or loss from the
Partnership is reportable by the Partners on their respective
income tax returns. Accordingly, there is no recognition of
income taxes in the financial statements.
(g) INTEREST RATE HEDGING - The Partnership entered into interest
rate swap agreements in order to hedge against future increases
in interest rates. For swap contracts that effectively hedge
interest rate exposures, the net cash amounts paid or received on
the contract are accrued and recognized as an adjustment to
interest expense over the period of the contract.
(h) FUEL COLLAR AGREEMENT - The Partnership entered into a commodity
collar transaction (the "Collar") in order to hedge against
future fluctuations in the price of natural gas. During the first
quarter of 1999, fuel costs were below the floor price in the
Collar and the Partnership was required to make payments to the
counterparty which were recorded as a component of fuel costs.
During the remainder of the year, the fuel costs were within the
cap and floor range and no payments were required of either
party. The Collar is in effect through December 31, 2000.
(i) USE OF ESTIMATES - The preparation of the Partnership's financial
statements in conformity with generally accepted accounting
principles necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the balance sheet dates and the amounts of expenses during the
reporting periods. Actual results could differ from those
estimates.
(j) CASH AND CASH EQUIVALENTS - The Partnership classifies all
investments with terms to maturity of less than three months upon
purchase as cash and cash equivalents. Cash and cash equivalents
at December 31, 1999 and 1998 consist primarily of a money market
investment account, which is carried at market, which
approximates cost.
(k) DEFERRED FINANCING COSTS - Deferred financing costs of $7,230,101
and $6,544,596 at December 31, 1999 and 1998, respectively, are
amortized over the life of the credit agreements and are included
in other assets.
(l) IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets and certain
identifiable intangibles are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability is
assessed based on the future cash flows expected to result from
the use of the asset and its eventual disposition. If the sum of
the undiscounted cash flows is less than the carrying value of
the asset, an impairment loss is recognized. Any impairment loss,
if indicated, is measured as the amount by which the carrying
amount of the asset exceeds the estimated fair value of the
asset.
(m) REAL ESTATE TAXES - The Partnership has accrued real estate taxes
as required in the Facility Lease (see Note 4). The Partnership
has made its best estimate of its anticipated real estate taxes,
but has not yet been billed by its local taxing authority.
However, management does not believe that actual taxes due will
be materially different than the amounts currently accrued.
4. RELATED PARTY AGREEMENTS AND TRANSACTIONS
FACILITY LEASE - The Project is located at 2600 Christian Street, Philadelphia,
Pennsylvania, on the site of TPEC's Schuylkill Station and PECO's Schuylkill
Station, which is owned by PECO. The Partnership has leased a portion of the
land which TPEC has leased from PECO. The lease agreement with TPEC commenced on
the date construction began, March 8, 1996, and will terminate 25 years from the
date of Commercial
E-4
<PAGE>
Operation. The Partnership is obligated to pay TPEC $1 per year as rent. The
Partnership is required to pay any increase in taxes, assessments and fees
assessed against the site or the facility during the lease term.
DOCK FACILITY SERVICE AGREEMENT - The Partnership has an agreement with PTDC and
TPEC, an affiliate of PTDC, for fuel oil transportation and storage services.
The Partnership pays operating fees based on the number of barrels received at,
or delivered to, the dock as well as a storage fee for barrels stored for use by
the Project. These fees are adjusted annually based on the Consumer Price Index
("CPI"). During 1999, 1998 and 1997, the Partnership incurred costs associated
with these services of $156,399, $199,640 and $100,923, respectively, of which
$13,297 and $12,862 is included in accounts payable at December 31, 1999 and
1998, respectively. The entrance to the Schuylkill Station of TPEC, which is
also the entrance to the Project, was upgraded in 1997. The Partnership had
previously agreed to reimburse TPEC for its share of the cost which amounted to
$250,000.
OPERATIONS AND MAINTENANCE AGREEMENT - PUPCO, a Delaware corporation, an
affiliate of TPEC, manages and performs all operation and maintenance of the
Project subsequent to the Commercial Operation date in accordance with a 25-year
agreement. Prior to Commercial Operation, PUPCO was reimbursed for certain costs
incurred during mobilization and received a monthly fee of $25,000 limited to
$150,000 in total monthly fees. After Commercial Operation begins, the
Partnership is required to pay PUPCO an annual operating fee of $600,000 as
detailed in the agreement. A portion of the operating fee, $400,000, is adjusted
annually based on changes in the CPI. As an additional fee, PUPCO will receive
30% of all payments received by the Partnership pursuant to the Contingent
Capacity Purchase Addendum (Phase 1). The Partnership was billed by PUPCO annual
operating fees of $786,240 and $600,000 in 1999 and 1998, respectively, capacity
fees of $757,416 in 1999 and 1998, and reimbursable expenses of $1,685,662 and
$1,647,658 for 1999 and 1998, respectively, of which $256,584 and $1,497,003 was
included in accounts payable at December 31, 1999 and 1998, respectively.
Included in the billings in 1998 and 1997 were $29,192 and $32,851 of fees and
reimbursable expenses, respectively, which were capitalized as construction
cost.
STEAM SALE AGREEMENT - The Partnership has a 25-year agreement with TPEC in
which the Partnership sells all of the steam produced by the plant to TPEC. The
price for low- and high-pressure steam is determined based on a function of
weighted average fuel price, CPI and the City of Philadelphia Tariff Water and
Sewer Rates. The agreement requires TPEC to pay for a minimum of 3.3 Mlbs on an
annual basis upon Commercial Operation. During 1999, 1998 and 1997, $17,747,886,
$18,113,962 and $851,182, respectively, was billed by the Partnership to TPEC
for steam produced and capacity charges. Of the amounts billed in 1998 and 1997,
$296,199 and $851,182, respectively, were capitalized as a reduction of
construction costs as such sales occurred as a result of plant testing. Accounts
receivable as of December 31, 1999 and 1998 include $2,544,955 and $3,985,346,
respectively, due from TPEC for these billings.
ELECTRIC AND CONTINGENT CAPACITY SALES AGREEMENTS - The Partnership has two
20-year electric sale agreements with PECO, commencing at the Commercial
Operation date, whereby the Partnership supplies PECO with electric output at
costs defined by the agreements. The terms of agreements require PECO to
purchase or accept delivery of the net electric output from the power plant of
the lesser of 150 megawatts or the amount of electric output for which the FERC
has certified the power plant. The two parties also entered into a 20-year
Contingent Capacity Purchase Addendum which requires PECO to purchase electric
capacity from the Partnership. The addendum term commenced on the date of
Commercial Operation. During 1999, 1998 and 1997, $17,219,532, through April 23,
1999, when PECO transferred its Partnership interest to the remaining payments
(see Note 1) and ceased being considered a related party, $61,932,981 and
$1,778,911, respectively, was billed by the Partnership to PECO for electricity
produced and capacity charges. Of the amounts billed in 1999, 1998 and 1997, $0,
$1,624,855 and $1,778,911, respectively, were applied as a reduction of
construction costs as such sales occurred as a result of plant testing. Accounts
receivable as of December 31, 1999 and 1998 include $5,606,051 and $6,693,424,
respectively, due from PECO for these billings. As a result of the Project, PECO
was required to construct an interconnection between its facility and the
Partnership's facility. The costs associated with the interconnection,
$2,355,426, were reimbursed to PECO by the Partnership during 1997. Other
amounts paid to PECO during 1997 for reimbursement of expenses were $6,000 for
the Partnership's portion of a joint thermal modeling study.
STEAM VENTURE AGREEMENT - On September 17, 1993, TPEC, PUPCO and the Partnership
entered into an Amended and Restated Steam Venture Agreement for the purpose of
the Partnership designing, constructing, starting-up, and testing and owning a
cogeneration facility, with the assistance of the other two participants. The
agreement required the Partnership to pay PUPCO quarterly fees of $150,000 up to
Commercial Operation. Amounts billed in 1997 were capitalized as construction
costs. After Commercial Operation commenced, PUPCO receives annual fees of
$1,200,000 payable in monthly installments. Two-thirds of the annual fee is
subject to an escalation of 3% per annum. During 1998 the Partnership was billed
$1,200,000 by PUPCO under this agreement, of which $25,806 was capitalized as
construction
E-5
<PAGE>
cost. The Partnership was billed $1,224,000 during 1999. Accounts payable at
December 31, 1999 and 1998, include $102,000 and $1,200,000, respectively,
related to these billings. In addition, during 1997, the Partnership incurred
PUPCO mobilization fees of $150,000.
FUEL MANAGEMENT AGREEMENT - From the commencement of Commercial Operation
through February 28, 1999, the Partnership had an agreement with Exelon
Corporation, a subsidiary of PECO, for fuel management services. Under the terms
of the agreement, the Partnership paid Exelon a fee based on the amount of
natural gas and liquid fuels delivered to the Project. During 1998, the
Partnership incurred costs associated with these services of $176,480, of which
$4,474 was capitalized as construction costs and $176,480 was included in
accounts payable at December 31, 1998. On February 28, 1999, the agreement with
Exelon was terminated by mutual consent among the parties. The Partnership was
billed $31,336 in fuel management service fees by Exelon through February 28,
1999, all of which was paid by December 31, 1999.
On February 28, 1999 the Partnership entered into an agreement with PUPCO for
fuel management services substantially identical to the services provided under
the previous agreement with Exelon. Under the terms of the agreement, the
Partnership reimburses PUPCO for all reasonable labor and other out-of-pocket
costs incurred in the provision of its services. During 1999, PUPCO billed the
Partnership $50,885 for the services, of which $4,523 remained in accounts
payable at December 31, 1999.
CONSTRUCTION MANAGEMENT - NRGG received fees and reimbursed expenses for
management services provided to the Project and for acting as the Partnership's
representative to administer all third-party contracts during the construction
phase. The arrangement commenced on March 8, 1996 and ceased upon Commercial
Operation. During 1998, NRGG billed the Partnership fees and reimbursed expenses
of $56,250 and $214,795, respectively, all of which were capitalized as
construction cost.
MANAGEMENT SERVICES AND OTHER - In accordance with the Partnership agreement,
the Partnership is required to pay its Managing Partner $150,000 per year for
providing management services to the Partnership. NRGG acted as Managing Partner
through November 15, 1998 and billed the Partnership fees and reimbursable
expenses of $131,250 and $36,719, respectively, of which $118,750 was included
in accounts payable at December 31, 1998. Of these fees, $3,387 was capitalized
as construction cost. Effective November 15, 1998, Trigen became the Managing
Partner and billed the Partnership fees of $156,480 and $18,750 for the years
ended December 31, 1999 and 1998, respectively, of which $13,040 and $18,750 was
included in accounts payable as of December 31, 1999 and 1998, respectively.
Trigen also billed the Partnership reimbursable expenses of $154,083 for the
year ended December 31, 1999, of which $80,701 was included in accounts payable
as of December 31, 1999. In addition, the Partnership purchases demineralized
water from Trigen. For the years ended December 31, 1999 and 1998, the
Partnership purchased $2,132,296 and $2,206,869, respectively, of demineralized
water from Trigen of which $46,671 was capitalized as a construction cost prior
to commercial operation during 1998 and $290,634 and $498,322 was included in
accounts payable as of December 31, 1999 and 1998, respectively.
5. OTHER SIGNIFICANT CONTRACTS
GAS SUPPLY AGREEMENT - The Partnership has a gas sales agreement with Aquila
Energy Marketing Corporation ("Aquila"), a Delaware corporation, providing for
the purchase of natural gas to meet the power plant's requirements. The purchase
of gas as stated in the agreement is divided into two tiers based on quantity
purchased. The price of the first tier, for daily purchases up to 32,000 million
British Thermal units (MMBtu) is based on the gas spot market plus a premium.
The second tier, for daily purchases above the initial 32,000 MMBtu, is also
based on the gas spot market plus a premium. The premium on second tier gas
purchases is subject to annual negotiations effective for years beginning
January 1, 1999 and after. In addition, beginning in 2001 the price of both
tiers is indexed based on the electricity rate received by the Project. The
agreement also has a pricing provision for winter quantity gas delivered to
certain redelivery points as defined in the agreement. The initial term of the
gas sales agreement is 192 months from the initial delivery and may be extended
for one-year renewal periods unless terminated by either party. During 1999 and
1998, the Partnership purchased $28,071,455 and $14,691,090, respectively, of
gas under this agreement.
GAS TRANSPORTATION ARRANGEMENTS - The Partnership and the Philadelphia Authority
for Industrial Development ("PAID") entered into a service agreement dated
January 28, 1996, whereby PAID agreed to deliver non-interruptible local gas
service to the Project for up to 50,000 Dekatherms ("Dth") per day from the date
of Commercial Operation via an established agreement with Philadelphia Gas Works
("PGW"). The agreement between the Partnership and PAID is
E-6
<PAGE>
for a period of 25 years and may be extended at the mutual agreement of the two
parties. The Partnership is committed to purchase transportation services for a
minimum annual quantity based in part, on steam sales to Trigen. In addition,
TPEC permanently released capacity of 15,000 Dth to the Partnership beginning
November 1, 1997. TPEC retained first refusal privileges on this released
capacity in the event that the Partnership does not require the additional
capacity. During 1999 and 1998, the Partnership purchased $3,627,758 and
$3,187,640, respectively, of transportation services under these agreements.
ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT - The Partnership has a
$116,300,000 engineering, procurement and construction contract (the "EPC") with
the Contractor. The contract guaranteed that the Project would be provisionally
completed by December 8, 1997, the projected date of Commercial Operation.
Provisions of the contract included rebates to the Partnership of $70,000 a day
should the Contractor fail to complete the Project on schedule as well as bonus
payments to the Contractor should the Project be completed prior to schedule.
The contract was not completed on time. As such, a rebate in the amount of
$1,722,000 was recorded in accounts receivable at December 31, 1998 and this
amount was received during 1999. The Partnership and the Contractor resolved all
of their differences related to the completion of the EPC contract on April 26,
1999 when they executed an amendment to that contract. The amendment fixed the
date of Provisional Acceptance at April 26, 1999 and adjusted the amounts
remaining payable under the contract on the date of the amendment downward
$2,417,000 for late completion and other items.
COMBUSTION TURBINE PARTS SUPPLY AND REPAIR AND SCHEDULED OUTAGE SERVICES
AGREEMENT - The Partnership entered into a combustion turbine parts supply and
repair and scheduled outage services agreement with Westinghouse Electric
Corporation as of August 29, 1997. The agreement requires the Partnership to
purchase from the Contractor parts and miscellaneous hardware for the gas
turbine comprising a portion of the Project, repair of parts for the gas turbine
comprising a portion of the Project, and scheduled outage services and technical
field assistance for unscheduled outages as defined in the agreement. The
Partnership was billed $360,000 for 1998 services provided and has estimated the
same amount for 1999. On April 26, 1999, the parties signed an Amendment to the
original agreement which provides a $400,000 credit towards the purchase of
Contractor services. The Partnership applied the credit toward the 1999 and 1998
expenses. The amount included in accounts payable to the Contractor on December
31, 1999 was $182,600.
6. CREDIT AGREEMENTS
CONSTRUCTION CREDIT AGREEMENT - On March 1, 1996 the Partnership entered into a
$125,000,000 Credit Agreement (the "Agreement") to provide construction and term
loan financing for the purpose of financing a major portion of the Project
facility. The Agreement provides the Partnership with $113,000,000 of
construction loan commitments (the "Construction Loan") which are convertible to
term loan commitments (the "Term Loan") after completion of certain criteria as
stated in the Agreement, $7,000,000 in letter of credit commitments (the "LOC
Commitment"), and $5,000,000 in working capital loan commitments (the "WC
Loan"). Upon completion of the Project, the Construction Loan is due and payable
or may be converted to a 15-year Term Loan, payable in quarterly installments
through the year 2013. The Term Loan is available only to repay the Construction
Loan. Substantially all of the Partnership's assets have been pledged as
collateral under the Agreement.
The Partnership had $79,400,682 and $94,324,049 outstanding under the
Construction Loan at December 31, 1999 and 1998, respectively. The Partnership
has pledged $3,000,000 and $5,000,000 under its LOC Commitment for outstanding
letters of credit as of December 31, 1999 and 1998, respectively.
Interest on balances outstanding under the Construction Loan and the WC Loan
prior to conversion of Construction Loan to Term Loan, is based on either the
base rate, as defined in the Agreement, or LIBOR plus 1.1% as elected by the
Partnership at the time of borrowing, and was 7.60% and 6.66% at December 31,
1999 and 1998, respectively. Interest on balances outstanding under the Term
Loan and the WC Loan, subsequent to conversion of Construction Loan to Term
Loan, is based on the rates as noted during the Construction Loan period and is
subject to an increase in the percentage as defined in the Agreement. Interest
on letters of credit outstanding under the LOC Commitment is currently 1.1%, and
is subject to periodic increases during the term of the Agreement. The LOC
Commitment also is subject to a fee of 0.125%, due quarterly.
The Agreement provides for commitment fees of 0.375% on the unused Construction
Loan, WC Loan and LOC Commitment.
E-7
<PAGE>
To protect the Project Lender from the uncertainty of interest rate changes
during the term of the loan, the Partnership entered into an agreement (the
"Swap Agreement") with Chase Manhattan Bank (the "Counterparty"), a
participating bank in the Loan Agreement on March 1, 1996. Under the Swap
Agreement, the Partnership agreed to swap interest payments with the
Counterparty. Effective December 8, 1997, the Partnership is obligated to make
fixed interest payments at a rate of 7.18% from effective date of December 8,
1997 through termination date of December 8, 2012 on a balance of $56,500,000 at
December 8, 1997 and decreasing in accordance with the Swap Agreement. The
Counterparty is obligated to make variable interest payments based on a
three-month LIBOR, which was 6.1% and 5.2% at December 31, 1999 and 1998,
respectively, on the same balance.
SUBORDINATE CREDIT AGREEMENT - The Partnership also has a Subordinate Credit
Commitment with the Project's Contractor. The Contractor agreed to lend the
Partnership $15,000,000 to provide additional funding for the construction of
the Project. The funds were made available after the Construction Loan
commitments described above were exhausted and the Partners made their equity
contribution of $30,000,000 used for the continuation of the Project's
construction. The term of the Subordinate Debt is nine years and interest on the
Subordinate Debt is calculated using the prime rate for the first four years and
prime rate plus 1.5% for the remaining years. During 1998, the Partnership
borrowed the full $15,000,000 available under the Subordinate Debt, all of which
remains outstanding at December 31, 1999. During 1998, the Partnership received
a notice of default from the Project Lender. Such default resulted in a
cross-default on the Partnership's subordinate debt. (See Note 2).
7. CAPITAL CONTRIBUTIONS
During 1997, the Construction Loan (see Note 6) was fully utilized. Each of the
Partners made an equity contribution of $10,000,000. The last contributions were
made December 29, 1997.
8. NEW ACCOUNTING PRONOUCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP 98-5), REPORTING ON THE COSTS OF START-UP
ACTIVITIES. This statement, which requires that costs related to start-up
activities generally be expensed as incurred, is effective for fiscal years
beginning after December 25, 1998. The Company recorded a $357,000 charge
against income in the year ended December 31, 1999 as the cumulative effect of
change in accounting principle due to adoption of this pronouncement. As these
costs were incurred prior to the year ended December 31, 1997, pro forma income
for the year ended December 31, 1997, assuming the method is applied
retroactively, would not be materially different from the income as reported.
Therefore, no pro forma disclosure of the effect of this change in accounting
principal is necessary.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENT AND HEDGING ACTIVITIES. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. This statement, as amended by SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133, is effective for fiscal years
beginning after June 15, 2000. The Partnership is in the process of analyzing
the impact that SFAS No. 133 will have on its financial position and results of
operations when such statement is adopted.
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<PAGE>
9. COMMITMENTS AND CONTINGENCIES
The Partnership is committed to purchase non-interruptible local gas service for
the Project from the Philadelphia Authority for Industrial Development ("PAID")
through a service agreement dated January 28, 1996. The agreement between the
Partnership and PAID is for a period of 25 years and may be extended at the
mutual agreement of the two parties. The service agreement requires the
Partnership to purchase a minimum annual quantity of gas transportation. The
minimum annual amounts, based on the minimum quantities and costs per the
agreement are as follows:
<TABLE>
<CAPTION>
MINIMUM
YEAR ANNUAL AMOUNT
<S> <C>
2000 $ 880,000
2001 1,184,000
2002 - 2016 688,000
2017 - 2022 536,000
</TABLE>
These minimums are subject to downward revisions for the amount of gas
delivered to Trigen as well as the quantity of steam produced at the
Schuylkill station.
******
